UPDATE 1-Sixteen banks back D. Boerse rates clearing launch

Thu Nov 15, 2012 4:38pm GMT

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* Clearing platform went live on Tuesday

* Analysts see platform boosting Boerse revenue mid-term

* Banks influenced fee structure, win discounts -source

By Luke Jeffs

LONDON, Nov 15 (Reuters) - Sixteen of the world's top banks are backing a new interest rate swap clearing service from Deutsche Boerse in an early show of support for a move by the German exchange to tap derivatives reform.

The Frankfurt-based exchange said on Thursday 10 banks including Barclays, Credit Suisse, JP Morgan and the Royal Bank of Scotland began using the service, called Eurex Clearing, after its launch on Tuesday.

The exchange said a further six banks, including Goldman Sachs, Morgan Stanley and Societe Generale , were set to use the service, while funds would be able to join from the second half of 2013.

"The Eurex Clearing platform offers our clients additional choice for clearing over-the-counter (OTC) products, which is especially important given the introduction of mandatory clearing requirements," said Alex Lenhart, European head of prime services listed derivatives at Credit Suisse.

Interest rate swaps are complex derivatives that allow companies to hedge their exposure to interest rate moves.

Deutsche Boerse is offering clearing for interest rate derivatives now and plans to offer clearing in other asset classes, such as equity swaps in the future.

Analysts said the clearing platform would help to boost Deutsche Boerse's revenue at a time when traditional trading activity has been dampened by market volatility and broader economic concerns.

"EurexOTC Clear will not contribute a very significant sum to Deutsche Boerse's turnover next year but there absolutely is potential in the medium term," said Equinet analyst Philipp Haessler.

"And it's positive that Deutsche Boerse could win over 16 big banks. The more banks, the better," Haessler said.

A financial source said the banks backing the platform were able to influence the fee structure during the preparation phase and would also receive a discount under certain conditions.

Deutsche Boerse declined to comment on agreements with the banks.

EARLY MOVER

Deutsche Boerse has timed the launch to coincide with planned reforms in the United States and Europe that will overhaul the vast OTC derivatives market, including interest rate swap trading.

Global regulators want to force swathes of the OTC markets to start using clearing houses to make these complex products easier to monitor and regulate.

Clearing houses sit between banks and other trading firms, back-stopping their trades by holding capital that can be used to bail out any firm left out of pocket by the collapse of a trading partner, like that of Lehman Brothers four years ago.

"The new service, which will be further expanded in 2013, is one important element of Eurex Clearing's comprehensive roadmap in preparing for the changing regulatory environment," said Deutsche Boerse in an emailed statement.

The Boerse and its rivals, including the CME Group, the IntercontinentalExchange, the London Stock Exchange and NYSE Euronext, are working to position themselves ahead of the reforms that are set to take effect from next year.

The Boerse's launch of interest rates clearing, the largest group of derivatives traded off-exchange, pitches the German exchange into direct competition with the main supplier of rates clearing, LCH.Clearnet.

The LSE group plans to buy a majority stake in LCH.Clearnet before the end of this year in a deal that values the Anglo-French provider that dominates rates clearing at about 800 million euros.

The other banks using Eurex Clearing for rates are Basler Kantonalbank, Citigroup, Deutsche Bank , Commerzbank, HSBC and UBS .

BNP Paribas, Nomura and Norddeutsche Landesbank have also pledged to use the German rates clearing service, the exchange said.

Investment banks are keen to support new clearing initiatives to promote competition between providers which tends to keep fees down and lowers the banks' costs.

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