LCH.Clearnet Ltd (LCH.Clearnet) has launched clearing for Overnight Index Swaps (OIS) contracts through its proven over-the-counter (OTC) interest rate swap clearing service, SwapClear.
An OIS is a fixed/floating interest rate swap with the floating leg tied to a published index of a daily overnight rate reference such as the Sterling Overnight Interbank Average (SONIA) or the Euro Overnight Interbank Average (EONIA®). Providing clearing to the OIS market, which is a major benchmark for short-term interest rate swaps, will increase interbank liquidity by mitigating counterparty risk, increasing trading capacity and reducing settlement costs.
Four currencies; USD, GBP, EUR and CHF, will initially be cleared, though this may be extended. The contracts are for tenors of up to two years and trades are accepted through MarkitWire, the electronic trade confirmation network for the OTC derivatives markets.
Joe Reilly, director of SwapClear, LCH.Clearnet said: “Managing counterparty risk has never been more important and, as a result, we have seen a remarkable growth in demand for our SwapClear service. We will continue to deliver innovative and secure clearing solutions to meet the needs of the global interest rate swap market.”
SwapClear enables major global swap dealers to reduce the risk and processing costs in the interest rate derivatives market. Established in 1999, it was the world’s first OTC clearing service and now clears over 60% of the global interbank interest rate swap business. The resilience of the unique default management process, developed in partnership with the interest rate swap community, was demonstrated in September 2008 when it successfully handled Lehman’s $9 trillion interest rate swap portfolio.
In May, LCH.Clearnet announced that it would be broadening SwapClear to the buy-side community, significantly increasing the proportion of financial companies able to access clearing in the rates market. In the last four months, four new banks have signed up to join SwapClear, demonstrating the heightened awareness of the value of the service to the market.