cleared inflations swaps jumped
to $170 billion.
The main cause of this
was the activity in the inter-dealer market, in which 95%
of inflation swaps are now
cleared, with the initial margin rules acting as an incentive
to migrate to clearing. Swaps
dealers are quoting better
prices for their buy-side clients because it allows them to
avoid the higher costs in the
“What is happening now is
as the interdealer market has
moved to cleared, if the client
chooses to clear, the dealer can
net that dealer-to-client trade
with their inter-dealer trade,
therefore reducing their funding
costs, [and] potentially resulting
in the emergence of a basis that
is reflected in execution pricing
between uncleared and cleared
inflation swaps,” adds Goh.
As well as inflation swaps,
other products such as swaptions and non-deliverable forwards (NDFs) have also seen a
boost in voluntary clearing as a
result of the rules.
Since the rules, CME
Clearing has said it is seeing
increased client interest in
“In terms of actual activity
we have seen two additional
clearing members and a few
ceremonial swaptions trades
that market participants have
executed to work through the
custodial accounts for posting
Swap dealers were given
until 3 October to establish
custodian accounts in order to
comply with the rules.
With many dealers having
now established their custody
accounts, following the rollout of
the requirements, the initial margin rules have had a significant
impact on derivatives trading.
According to Cameron Goh,
global head of product development for rates and FX derivatives
at LCH, the rules are one of the
biggest changes to the way banks
operate in the OTC market.
The result of which has
caused a significant shift from
the uncleared bilateral trading
world to a cleared environment.
This has been particularly evident in inflation swaps trading.
“The biggest change we
have seen is in products such
as inflation swaps, where there
is now a greater incentive to
clear,” says Goh.
Goh explains that prior to
the rules, the average monthly
notional value of cleared inflation swaps was $36 billion, but
since 1 September “brokers were
effectively quoting cleared pric-es… as clearing is now a more
bank resource-efficient option”.
As a result, the average
monthly notional cleared in
September and October for
have seen is
is now a
Cameron Goh, LCH