Eurex to Clear Off-Exchange Interest Rate Derivatives

Deutsche Boerse AG’s Eurex Clearing unit plans to offer processing of over-the-counter interest rate and equity derivatives, as it seeks to capitalize on regulators’ push to move more complex financial products through clearinghouses.

The company’s Eurex OTC Clear service will be expanded “to include OTC-traded interest rate and equity derivatives,” the company said in an e-mailed statement today. At present the clearing service guarantees so-called look-like futures and options traded both on the Eurex derivatives exchange and over-the-counter. The company also owns Eurex Credit Clear, a clearing service for over-the-counter credit default swaps. Eurex Clearing processed 774 million contracts in OTC-traded products in 2010, the exchange said.

Frankfurt-based Eurex is pitting itself directly against London-based LCH.Clearnet Ltd., the world’s largest interest-rate swaps clearinghouse. One in four hedge funds is already clearing over-the-counter derivative trades, up from none in October, before new rules require changes later this year to the $583 trillion market, analysts at UBS AG said March 10.

The Group of 20 nations is encouraging greater use of clearinghouses in a bid to cut some of the risks attached to derivatives trading. Most interest-rate, credit-default and other swaps bought and sold by money managers will be required to be processed by a clearinghouse later this year under new U.S. regulations. Europe is also moving ahead with its own regulations.


Clearinghouses -- such as London’s LCH.Clearnet Ltd. and Eurex Clearing -- operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the risk that a trader defaults on a deal.

CME Group Inc., the world’s largest futures market, on Feb. 28 said it will reduce margin payments for customers who own offsetting interest-rate future and cash U.S. Treasury trades to ward off planned competition from NYSE Euronext. In London, CME Clearing Europe, a unit of CME, will start clearing more than 150 over-the-counter energy and commodity derivative products from May 6.

Global Derivatives Trading

Global derivatives trading on exchanges rose the most since 2003 last year, the World Federation of Exchanges said March 7. Volume rose 25 percent to 22.4 billion contracts last year, according to the Paris-based trade group, which has 52 members that list a total of 45,000 stocks around the world. The outstanding notional amounts of OTC contracts fell by 13 percent from June 2009 to June 2010, WFE said, citing data from the Bank for International Settlements.

This is “part of our strategic agenda enabling our customers to prepare for the new regulatory environment”, said Thomas Book, Eurex Executive Board member responsible for Eurex Clearing. “We will offer all clearing services in the relevant asset classes to our clearing members and buy-side clients to comply with new requirements.”

ICAP Plc, the biggest broker of transactions between banks, in September last year started an electronic market for the product and handled more than 10 billion euros of interest-rate swaps in the first week. Barclays Capital, Deutsche Bank AG and JPMorgan Chase & Co. all were market makers on ICAP’s new system.

Derivatives are contracts that have values determined by the underlying assets. Futures are agreements to buy or sell an underlying commodity or financial product at a determined later date. Options give the right, without the obligation, to buy or sell a security at a certain price by a given date.

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