September 5, 2017 / 10:16 AM / a month ago

DERIVATIVES-Margin rules drive FX clearing records

LONDON, Sept 5 (IFR) - Clearing of non-deliverable forwards at LCH’s ForexClear set a new monthly record in August as firms flocked to clear contracts ahead of a September 1 deadline that requires all financial counterparties to post initial margin against their bilateral derivatives exposures.

More than US$1trn notional of NDFs, comprising 130,000 contracts, were cleared at the London-based clearinghouse in August - an 8% increase on the previous monthly record set in March 2017. Total notional of NDFs outstanding in ForexClear reached US$1.3trn by the end of the month after a new daily record of US$65bn was hit on August 29.

”The uncleared margin rules continue to be a key driver of clearing activity at ForexClear and we are delighted to have passed this significant milestone in August,“ said Paddy Boyle, global head of ForexClear at LCH. ”These record volumes demonstrate that the margin, capital, risk and operational efficiencies that clearing brings to the market are proving persuasive to ever more market participants.”

As of September 1, initial margin rules were extended to all financial counterparties, requiring firms to post collateral against over-the-counter derivatives contracts that remain uncleared, increasing the cost of bilateral exposures. At the same time, a six-month delay provided by many global regulators for compliance with variation margin rules, came to an end.

ForexClear has 28 clearing members and has seen growing interest from buyside clients in the run up to new regulatory requirements.

JP Morgan completed its first cleared NDF trades on behalf of non-member clients last month. The US dealer expanded its OTC client clearing platform to FX contracts in response to growing demand driven by new variation margin rules and straight-through processing requirements under MiFID II, which is set to go live in January 2018.

“This launch is focused on automation of flow, which is key to our non-member clients,” said Nick Rustad, head of global clearing at JP Morgan. “It enables us to provide clients greater transparency of the clearing status of their trades from execution to settlement.”

JPM’s client clearing effort is a joint venture across the bank’s execution and clearing businesses.

ForexClear is expanding its product offering to launch clearing of G10 NDFs and physically delivered FX options later this year. (Reporting by Helen Bartholomew)

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