Eurex joins the cross-currency swap clearing party
The international exchange’s clearing offering for EUR/USD and GBP/USD cross-currency swap transactions marks another modest step towards wider use of central clearing in FX.
Eurex Clearing recently cleared its long-awaited first cross-currency swap transaction.
The company only offers interdealer clearing of EUR/USD and GBP/USD cross-currency swaps, although it says it plans to introduce client clearing next year.
Cross-currency swap clearing is not a new development – Hong Kong Exchanges and Clearing (HKEX) subsidiary OTC Clear has been clearing USD-HKD swaps for more than 18 months.
However, as the product becomes more established, other clearing houses can be expected to follow suit.
In turn, the number of swaps covered will increase, especially if market participants perceive a notable credit or settlement risk to these transactions, which combine an FX product and an interest-rate product.
R5FX CEO Jon Vollemaere notes that his platform has always used a central counterparty clearing (CCP) model because problems with bilateral credit are even more concentrated in emerging markets.
“Whether in places like China – where netting isn’t currently recognised – or India and Brazil, where risk amongst both resident and non-resident traders is reduced by using a CCP model, providing customers with the choice of either cleared or uncleared is the way the market is moving,” he says.