ANALYSIS: SIX Group aiming for bigger slice of Euro swaps clearing market

The plan is to force European firms trading Euro-denominated short-term interest rate futures and interest rate swaps to reduce their reliance on the London-based clearing houses that dominate those segments – ICE Clear Europe and LCH’s SwapClear.

Eurex Clearing, owned by the largest European exchange group Deutsche Boerse, has emerged in recent years as the likely beneficiary of any flows into Europe. The German CCP aims to attract more short-term rates and swaps by offering margin offsets against the various longer-dated European government bond futures already cleared in Frankfurt.

But the German clearer is not the only game in town. Sweden’s Nasdaq Clearing introduced in June last year Euro swaps clearing and Switzerland’s SIX Group started this year offering through its Spanish arm multi-currency swaps clearing to complement the Euro swaps that have cleared in Madrid for years.

José Manuel Ortiz-Repiso, head of Clearing & Repo Operations at SIX, said the AAR deadline on June 24 and the publication of the regulatory technical standards (RTS) on June 19 effectively fired the starting gun on firms’ final preparations.

“The relevant question for clients is whether they look to clear more than just the Euro, which is why we have obtained the license for multi-currency,” he said. “We have been offering Euro for the past nine years, but we have added US dollars, Sterling, and Swiss francs as well as Swedish, Danish and Norwegian Krona. Which central counterparty to choose in Europe is, I think, the most relevant issue for clients.”

Spanish exchange BME, part of SIX Group, said in December it was extending its long-standing Euro swaps clearing service to include the additional currencies, adding others may be rolled

The head of clearing said the six new currencies were those prioritised by clients, and customers will have a big say in any subsequent deliveries also.

“In terms of additional currencies, I think Yen and Canadian dollar may be the next two if the client demand continues to support them.”

While the offsets from clearing multi-currency swaps in one place may be compelling, SIX is going further, according to Ortiz-Repiso.

“Separately, we are increasing the flexibility of the collateral they will be able to post. We are confident of getting this approval after the summer at which point we want to be able to include the entire SNB basket as collateral.”

The Swiss group is also offering partnership programmes “with generous revenue sharing and significant CCP fee savings” open to firms that meet “a modest threshold of €100m (£86m)”.

“We are trying to contribute to the cost they will have, because they will have to implement a connection to another CCP and separate these flows, so we are offering super-attractive fee schedules, partnership, and revenue-sharing programmes to contribute to the extra cost they will have.”

Ortiz-Repiso continued: “We are in the process of signing off these contracts because we want to on-board clients as soon as possible. One thing that differentiates us from the others is our beneficial fee schemes are for all clients, not just the top three or first five. Assuming you meet a threshold, you get access to it.”

SIX, which currently has a relatively small book of Euro swaps held on behalf of Spanish banks, faces in Euro swaps clearing two large opponents.

LCH SwapClear, the incumbent, has the vast majority of the Euro swaps market, estimated by trade body ISDA to be worth $188tn (£138tn) at the end of last year.

Eurex Clearing said its interest rate swap notional outstanding rose 28% last month to €18.5tn, giving that service a market share of about 12%.

SwapClear estimated in 2023 that 30% of total Euro notional originates from the EU so the value of Euro swaps involving European clients could be as high as $56tn, or €48tn.

AAR requires European clients to clear only a fraction of their Euro swaps with European CCPs but it is obvious the numbers could stack up quickly.

Ortiz-Repiso said: “We are forecasting that about 20-25% of clients’ Euro swaps could move to European CCPs based on the optimisation of the portfolios for different clients. But this will not be a big bang, rather we expect a steady move across to Europe.”