More options from LCH next year, as NDF volumes boom

Propelled by the onset of bilateral margining rules, which took effect in the US and Japan in September, the record number of non-deliverable forward (NDF) foreign exchange trades cleared on LCH's ForexClear in 2016 has made it a very good year for clearing.

In October, volumes reached $529 billion of notional cleared, nearly 50% more than in September, when the margin rules came in, and more than double the figure achieved in August.

Paddy Boyle, global head of FX product at LCH, expects these numbers to continue rising for the foreseeable future, as current ForexClear members ramp up their clearing volumes and those financial institutions that will be caught in the second tier of the bilateral margining rules next September embark on the clearing process ahead of the next threshold taking effect.

"We expect members will continue to substantially increase their clearing volumes, with the aim of clearing all their NDF trades," says Boyle. "We're working closely with our clearing brokers to facilitate the significant number of clients who are looking to start clearing in the coming months."

With the next margin threshold taking effect less than a year from now, ForexClear, the winner of the Best FX Clearing House category at the 2016 FX Week Best Banks Awards, is already engaged with the next wave of market participants and expects a significant portion of smaller banks, hedge funds and asset managers to start clearing soon.

Once more members are clearing substantial volumes, we expect most of them will use our compression services
Paddy Boyle, LCH

The next addition to ForexClear's products will be the launch of G10 currency NDF clearing in early 2017, followed by options clearing later on in the year. Originally planned for launch in 2011, options clearing has been repeatedly pushed back in order to resolve the issue of same-day liquidity settlement and guaranteed delivery.

Initially, the service will be rolled out for the most liquid and high-volume currencies. In the absence of a mandate for clearing these contracts, options clearing has gained significant importance since the advent of bilateral margin rules.

Boyle is optimistic that LCH's collaboration with CLS will come to fruition next year, and he remains confident that a high proportion of ForexClear's membership will be on board when the service is launched.

With greater NDF volumes coming through its doors, ForexClear's compression service, which it introduced earlier this year, will also gain traction.

"The members clearing the most volume, for whom compression is most beneficial, are expected to move first," says Boyle. "Once more members are clearing substantial volumes, we expect most of them will use our compression services."

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