MPS Capital Services (MPS), a wholly owned subsidiary of Banca Monte dei Paschi di Siena S.p.A., Barclays Capital, the investment banking business of Barclays Bank plc, and LCH.Clearnet Ltd (LCH.Clearnet) today announced that MPS has signed an agreement to clear interest rate swaps on LCH.Clearnet's SwapClear service through Barclays Capital. The transaction represents the first major client clearing mandate for backloaded trades.
Barclays Capital is the primary clearing broker for MPS's interest rate swap transactions under an agreement that includes the backloading of a significant portion of MPS's historical interest rate swap transactions, a first for client clearing.
The total notional value of interest rate swaps to be backloaded is in excess of $200 billion, with a material portion of that backloading already undertaken, including dollar, sterling and euro swaps with multiple counterparties.
"This agreement is an important step for MPS in developing a leadership position in OTC Derivatives. MPS is fully supportive of the expected EU regulatory reform towards central clearing," said Matteo Bertotti, Head of Fixed Income Derivatives at MPS Capital Services. "Barclays Capital has displayed a clear commitment, leadership and readiness to adapt to these new market developments. MPS was pleased to extend its long history of working with Barclays Capital through this transaction."
By backloading and clearing future interest rate swap transactions, MPS will benefit from reduced counterparty risk, potential capital relief, a more efficient collateral management process and lower overall operational risks.
"This is a clear milestone in the work to take the clearing of OTC interest rate swap transactions beyond the dealer-to-dealer level. OTC clearing represents a significant technology challenge for the industry and we are proud to be able to extend our leading position in clearing by being the first broker dealer to backload a substantial portfolio," said Ajay Nagpal, Head of Prime Services at Barclays Capital.
Harry Harrison, head of Rates Trading at Barclays Capital, added, "Central clearing will play a critical role in the development of the rates market - and other asset classes - by reducing counterparty risk, enhancing liquidity and bringing greater transparency and efficiency. From our position as one of the leading interest rates platforms in the industry, we see a tremendous opportunity to introduce the benefits of central clearing to our clients and hope that this transaction with MPS will be the first of many."
Michael Davie, CEO of the SwapClear service at LCH.Clearnet said, "We congratulate our partners MPS and Barclays Capital for this landmark transaction. This is an important step for the OTC market and the buy-side community as a whole and reflects the prevailing impetus to reduce systemic risk through central clearing. In choosing SwapClear to clear their trades and legacy portfolio, MPS will benefit from the proven experience, robustness and scope of the service. Our goal is to continue to work with clients and clearing members alike to reduce risk, reduce costs and improve market transparency."