Cleared forwards – coming to a desk near you
It seems only a matter of time before we see an offering that allows FX swaps to be centrally cleared.
FXMarketSpace always stated that it was going to do this but never got around to it and instead got mired in trying to reinvent the wheel with its spot offering.
However, it should be remembered that things introduced in one market which make it more efficient almost always cross over into other assets. An example of a successful initiative is the Bclear OTC derivatives clearing service, which was launched by Liffe back in 2005. The exchange recognized that the bulk of European equity trading took place in the OTC market and that it was going to remain there. However, it also recognized that some deals did not go through because of credit.
So it offered an alternative. OTC trades could, if the particpants agreed, be put through the clearing house. The benefits were substantial, largely because Liffe was able to keep the large brokers happy. Credit risk was mitigated, greater STP rates were achieved and overall volumes increased. Liffe is now about to roll out the service for commodity products.
None of the exchanges – especially those that own their clearing – make any secret of the fact that they want to see more OTC products passing over their platform in some shape or form.