LCH.Clearnet offers landmark inflation swap service
08 April 2015 London
Image: Shutterstock
LCH.Clearnet has become the first central counterparty (CCP) to offer inflation swap clearing, launching the service through its SwapClear offering.
Barclays and JP Morgan completed the first cleared inflation swap, as two of the 11 members that are already live and trading.
Expanding the range of derivatives eligible for clearing is intended to help those market participants trading UK, European and US inflation-linked products to benefit from the efficiencies and enhanced risk-management associated with central clearing.
Participants could also benefit from improved capital, margin and operations through portfolio margining.
Trading in inflation-linked swaps is a popular practice among asset managers and pension funds that are looking to guard against increases in inflation and interest rates.
Firms that opt to clear inflation swaps through SwapClear are now able to offset their margin requirements with correlating interest rate derivatives cleared at LCH.Clearnet.
Nathan Ondyak, head of products and markets at SwapClear, said: “After thorough risk reviews and testing, we are proud to be the first CCP to secure regulatory approval under both the European Market Infrastructure Regulation and US Commodity Exchange Act regulatory frameworks for inflation swaps clearing.”
“Clearing this new product, which shares structural similarities with other cleared interest rate derivatives, is a significant move for the market and underlines our commitment to providing safe and innovative risk management services to our members and their clients.”
Simon Wilkinson, head of liability driven investment funds at Legal & General Investment Management, added: “Risk management is a top priority for fund managers. Central clearing significantly mitigates counterparty risk and we welcome industry moves to provide clearing services for inflation swaps.”
Barclays and JP Morgan completed the first cleared inflation swap, as two of the 11 members that are already live and trading.
Expanding the range of derivatives eligible for clearing is intended to help those market participants trading UK, European and US inflation-linked products to benefit from the efficiencies and enhanced risk-management associated with central clearing.
Participants could also benefit from improved capital, margin and operations through portfolio margining.
Trading in inflation-linked swaps is a popular practice among asset managers and pension funds that are looking to guard against increases in inflation and interest rates.
Firms that opt to clear inflation swaps through SwapClear are now able to offset their margin requirements with correlating interest rate derivatives cleared at LCH.Clearnet.
Nathan Ondyak, head of products and markets at SwapClear, said: “After thorough risk reviews and testing, we are proud to be the first CCP to secure regulatory approval under both the European Market Infrastructure Regulation and US Commodity Exchange Act regulatory frameworks for inflation swaps clearing.”
“Clearing this new product, which shares structural similarities with other cleared interest rate derivatives, is a significant move for the market and underlines our commitment to providing safe and innovative risk management services to our members and their clients.”
Simon Wilkinson, head of liability driven investment funds at Legal & General Investment Management, added: “Risk management is a top priority for fund managers. Central clearing significantly mitigates counterparty risk and we welcome industry moves to provide clearing services for inflation swaps.”
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