Last year Citadel Securities,
the market making arm of the
Chicago-based hedge fund,
shocked the industry announcing it had become a self-clearing member of SwapClear,
prompting commentators to
predict a rise in direct clearing
for the buy-side.
However, Maguire is somewhat sceptical to this idea and
does not see LCH adjusting its
criteria for clearing membership.
“We continuously look at
ways to safely widen access to
clearing but have no immediate
plans to offer a direct [buy-side] clearing model. It’s important to have the right structure
in place to ensure members are
able to honour their obligations
and that all member interests
are aligned in the event of a
default,” he says.
“SwapClear has over 100
members, and we welcome any
new member that meets our
membership criteria. Citadel
Securities were perhaps ahead
of the curve in terms of non-
banks joining the service.”
In addition, if global bank-
ing regulators look to revise
the rules around client collat-
eral and how they are treated
under the leverage ratio rules
this could make direct clearing
“If in future, client margin is
exempt from the leverage ratio,
demand for buy-side direct access
to clearing may diminish.” n
Maguire explains that clearing
houses can play a large role in
bringing standardisation to the
post-trade workflow such as
compression and portfolio margining tools.
LCH went live with the latter
in May with LCH Spider, allowing market participants to offset
margin between listed derivatives positions and interest rate
swaps cleared by LCH.
Currently Nasdaq NLX is the
only listed derivatives exchange
that is linked up to Spider, but
CurveGlobal, the incoming
interest rate derivatives platform from the London Stock
Exchange Group (LSEG), will
also go live on the service following its September launch.
Now more than three months
on, Maguire says activity in the
service is peaking with several
potential users in the test-phase.
“Member onboarding is a
gradual process but we have
live customer participation on
LCH Spider and several members testing the service. Adding
further trading venues [such as
CurveGlobal in September] to
connect to LCH Spider could
act as a catalyst to encourage
more participants to use the
service,” he explains.
With LCH eyeing more trading venues to connect to Spider, it
could mean product expansion.
“We are currently live offering
portfolio margining with short
term interest rate futures [i.e.
short sterling, euribor]. Subject
to regulatory approval, we will
look to add in the longer-term
interest rates such as Bund, Bobl
and Schatz, so portfolio margin-
ing is an emerging story.”
Maguire adds standardised
elements in the cleared markets
could also be translated to non-
cleared markets, with the CCP
playing an enhanced role.
“Some products may not
be suitable for clearing on risk
grounds. However there may
be opportunities to bring some
of the standardisation [such
as compression] and efficiency
you get in the cleared to the
Yet with more activity going
through CCPs, there has largely
been a contraction amongst
clearing brokers. As a result of
heightened capital costs from
Basel III, many banks that previously took on a whole range
of clients have either made the
cost of doing business with
them higher or dropped them
Some clearing houses are
exploring new ways to avoid
this and to allow buy-side clients a direct path to the CCP.
Eurex have launched ISA
Direct, allowing pension funds
and insurance companies to
establish a direct clearing relationship with the CCP.