CCP frontloading: the pricing nightmare

From early next year, European derivatives users will have to clear any trades executed between the point a central counterparty is authorised and the date of a clearing obligation determination by the European Securities and Markets Authority, known as the frontloading requirement. But dealers remain confused about how it will work in practice, and the pricing impact it will have for customers. By Fiona Maxwell

Frontloading of derivatives contracts is not the most intuitive of concepts to understand. It sounds like it involves some kind of pre-emptive move, where users are ahead of the curve and take action before it is needed. In reality, it’s a very specific term devised by European legislators, which requires derivatives counterparties to retrospectively clear any transaction executed between the authorisation of a central counterparty (CCP) that clears the product and the start of a formal