From June 29, dollar, euro and sterling trades
in SwapClear will be revalued using OIS.
LCH.Clearnet already uses OIS rates to price
the rate of return on cash collateral.
LCH operates the world’s leading
interest rate swap clearing service, SwapClear.
Previously – in line with market
practice – the portfolio was discounted using Libor.
However, an increasing proportion of trades are now priced
using OIS discounting.
The clearing house says it has decided to
move to OIS to ensure the most accurate valuation of its
portfolio for risk management purposes. "It’s not
so much direct customer demand – it’s
just the way the market’s going," an LCH.Clearnet
spokesperson said. "We have to margin portfolios
The spokesperson said many banks were
increasingly trading swaps based on OIS rather than Libor.
The move is part of a trend in the interest
rate markets that could lead to increased demand for hedging on
exchanges against OIS rate movements. No exchanges offer any
such contracts for sterling or euro OIS, and a spokesperson for
Eurex said it had no immediate plans to launch OIS futures.
Liffe, the main trading venue for sterling
Libor and Euribor futures, would not comment.
In the US, the Chicago Mercantile Exchange has
Three Month OIS Futures and Options on the dollar rate, but
trading of these has declined this year. In the first five
months of 2010 only 300 contracts changed hands, compared with
16,159 in 2009 as a whole. The options do not trade.