LCH.Clearnet launched today its new service in clearing over-the-counter (OTC) contracts on the forward freight agreement (FFA) market.
The service will provide this rapidly expanding marketplace with all the benefits of broadly based central counterparty (CCP) services: the elimination of counterparty credit risk, multi-lateral netting, improved operational efficiency and straight-through-processing (STP).
At this early stage, the clearing service covers 4 wet (crude and refined products) routes and 9 dry (dry bulk commodities) routes in this thriving market, which allows charterers and shippers to hedge their shipping exposure and provides substantial arbitrage opportunities to its financial institution and trading company participants. It is open to the entire FFA market, and allows OTC brokered or bilaterally executed trades to be registered directly with LCH.Clearnet for clearing. In its preparation, the service has enjoyed strong support from the market, of which a substantial proportion has already joined, with more to follow.
David Hardy, Group Chief Executive at LCH.Clearnet, said: "We are delighted to see this further development in our clearing services to commodity markets. Our financially robust central counterparty model, with its considerable depth of default backing, is in broad use across a wide range of trading activities, and it is very pleasing to see the forward freight market now enjoying its benefits."
Sacha Konan, Manager, Cape Trading at Cargill SA, said: "This is another important step in the evolution of the FFA markets, and addresses the broad concern in the freight markets over counterparty risk. The new clearing service will act as a great stimulus to increase market liquidity."
Mark Hubbard, Commodity Business Development Manager for ABN AMRO Futures Limited said: "ABN AMRO is already an extensive user of LCH.Clearnet clearing services, and we are very pleased to add FFA clearing to our range of products. This latest addition is an attractive risk mitigant for our clients."