CME eyes further bank partnerships in swaptions clearing

CME Group is seeing interest rising in its voluntary swaptions clearing service, with more banks set to come on board as clearing members.

Barclays and RBS are among five firms to have cleared the first lot of interest rate swaptions with CME Group on Monday, according to a release.

The firms, which also include BNP Paribas, Citi and Credit Suisse, are approved to clear swaptions, and CME Group says it is onboarding several additional firms as clearing members.

CME has also partnered up with interdealer broker Tullett Prebon to enhance its swaptions clearing capabilities.

“We are excited to work with CME Group and liquidity providers to facilitae automated execution of cleared swaptions,” said Shawn Bernardo, CEO of Tullett Prebon’s swap execution facility (SEF).

Banks and buy-side firms have increased demands for more derivatives products to be centrally cleared as to avoid higher capital costs.

“Clearing swaptions will allow us the opportunities to streamline operational processes, mitigate risk and actively manage margin exposure along with our existing portfolio of cleared swaps,” Ian Malloch, chief risk officer at One River Asset Management.

From September this year, firms will have to post more collateral to cover derivatives trades conducted outside of clearing houses. It is because of this that firms have demanded more OTC derivatives to be pushed through clearing as a means to avoid the impending collateral costs.

“Credit support annex pricing discrepancies have increased the costs and limited the potential counterparties in bilateral swaptions trading, and the clearing of swaptions should bring additional liquidity, trading flexibility and processing benefits to the global marketplace,” added Neale Jackson, senior portfolio manager at hedge fund 36 South.