Onshore presence drives LCH.Clearnet's Asia business

Asia Risk Awards 2014: CCP of the Year – LCH.Clearnet

Marcus Robinson, LCH.Clearnet

LCH.Clearnet has a long history in Asia – it started clearing for the Sydney Futures Exchange, now part of ASX, in 1969, but 2014 marked a step change for the London-headquartered firm when it set up a full onshore office in Australia after it was granted a clearing and settlement licence in 2013, the only non-domestic institution to hold one. While it already had some boots on the ground at the end of July, it appointed Marcus Robinson as head of SwapClear Australia – the firm's interest rate clearing arm – and he took the long flight from the UK to drive the development of the business in the region.

Not that LCH had been lacking volumes from clearing Australian dollar and other Asian currencies' interest rate swaps prior to this; it currently clears 99% of all cleared Australian dollar interest rate derivatives, accounting for 41% of the entire market. Robinson says these numbers have increased significantly in the past year.

"There has been a noticeable increase in the throughput of Australian dollar interest rate derivatives clearing in the last 12 months – it has doubled over this period to reach about A$22 billion a day. This reflects an increased focus on Australian dollar clearing in the broader onshore market."

Robinson says that LCH.Clearnet has made a strategic tilt towards Asia in order to capture the growing amounts of business coming out of the region.

"The Asia-Pacific region has been an important strategic focus for LCH.Clearnet in general, and for SwapClear in particular, for some time. The main driver of our strategy has been the increased demand from participants in the region to access SwapClear's unrivalled global liquidity pool," he says.

While ASX only announced its first client clearing trade on October 1, LCH has been busy signing Australian banks to its service. ANZ and NAB moved from clearing to full membership in September 2013 with Commonwealth Bank of Australia joining in August this year.

"All of the main Australian banks have been client clearing with SwapClear for two years. They are active users of SwapClear and a number have transitioned to becoming direct members, with more in the pipeline, and that's a direct result of us being licensed in Australia. With an office in Sydney, we're now focused on building our presence in the region, including extending operating hours," says Robinson.

LCH's onshore presence in Australia is received positively not just by onshore clients but also by clearing banks around the Asia region. One Singapore-based direct clearing member of LCH says: "The fact that LCH.Clearnet has opened an Asian office in Sydney has been a huge statement of intent to the region – it's been very positively received by users based out here. They have taken the feedback onboard from the Asian clearing sector around the issue of opening hours and have addressed that by opening earlier."

The Singapore-based clearer says that LCH.Clearnet's decision to lengthen its opening hours in order to meet the demands of firms based in Asian time zones fitted a broader pattern of engaging with its end-users and adapting the service to meet their requirements.

This view is backed an Australia-based clearing user who described LCH as making strong efforts to understand what concerns and problems end-users faced.

"LCH.Clearnet is very consultative and quick to offer relevant market information, including feedback on what European buy-side concerns are. They have made a sincere effort to meet and understand us with ongoing dialogue."

Robinson highlights the extension of yen overnight index swaps out to 30 years and the amount of trades compressed as the key developments over the past 12 months, with the firm compressing a total of $180 trillion in notional.

"In terms of how that impacts Asia, with TriOptima, we carried out a yen compression eliminating approximately 35,000 trades, representing about $12.9 trillion in notional. In May, we compressed around A$1 trillion in notional comprising around 25,000 trades and eliminating 28.5% of the dealer-to-dealer IRS AUD portfolio eligible for triReduce compression in SwapClear," says Robinson.