LCH.Clearnet plans to challenge Australian Securities
Exchange (ASX) in its own backyard by signing up
Australia’s major banks to its interest rate swaps
clearing service, writes Jonathan Watkins.
The LSE Group-owned clearing house has emerged as the only
challenger to the regional incumbent ASX as the country
prepares for forthcoming over-the-counter clearing mandates to
LCH.Clearnet championed legislation allowing foreign
entities to clear interest rate swaps in Australia, and
subsequently launched there in July.
Since then, LCH.Clearnet has signed up the Australia and New
Zealand Banking Group (ANZ) and the National Australia Bank
(NAB), while it also has a deal in place to provide clearing
for the ASX’s new exchange rival, FEX.
The clearing house is now hoping to turn the major
Australian banks into full members of SwapClear.
Opening up competition
"We have worked closely with the Australian regulators and
local market participants to define an OTC clearing solution
which meets their G20 clearing commitments whilst enabling
Australian banks to access the global OTC IRS liquidity pool,"
said Marcus Robinson, director, LCH.Clearnet SwapClear.
"LCH.Clearnet's SwapClear service has been clearing AUD IRS
for a number of years and already clears 99% of all cleared AUD
IRS trades, representing 35% of the overall market.
"Even though the licence extension to cover Swapclear was
granted in July 2013 and we now have two Australian banks as
direct clearing members, the major Australian banks have been
using client clearing services in SwapClear for more than two
Client clearing is a construct by which banks provide
clearing services to their clients including smaller banks,
hedge funds and asset managers.
With the approval to launch, LCH.Clearnet became the second
clearing house in Australia, as the Australian government
sought to open up competition in the market.
The big four
The clearing house has now set its sights on capturing the
rates business of the country’s big four.
Along with ANZ and NAB, this includes Commonwealth Bank
(CBA) and Westpac.
ASX already has these firms on its clearing service, along
with Citi, Deutsche Bank, JP Morgan and UBS.
Those eight banks account for 90% of the annual $15trn
Australian dollar swap market, according to the exchange.
LCH.Clearnet is also hoping to secure the memberships of
"We're expanding our operations and regional headquarters in
Sydney, to support plans to extend the service operating hours
and the expected increase in demand for clearing services prior
to the implementation of a clearing mandate in Australia and
the rest of Asia-Pacific," added Robinson.
"In the last twelve months we have seen volumes cleared by
Australian participants increase four fold, which shows that
the Australian market is embracing clearing even before a
mandate is enforced.
"We expect this number to continue to grow as other major
Australian banks transition to direct membership."
LCH.Clearnet told FOW it is planning to extend its operating
hours to cater for the Asia Pacific day as one of its key
initiatives for 2014.
The clearing house is also hoping to implement local
collateral arrangements so that Australian participants can
post Australian dollars cash as initial margin and also use
Australian securities in the local infrastructure as well.