Aegon Asset Management has become the first buy-side client to clear zero coupon inflation swap (ZCIS) transactions at Eurex Clearing, with J.P. Morgan acted as executing and clearing broker.
The Deutsche Boerse-owned central counterparty (CCP) offers ZCIS clearing for the eurozone Harmonized Index of Consumer Prices excl. Tobacco, the French Consumer Price Index, and the UK Retail Price Index.
Eurex says it has seen regular dealer-to-dealer volumes since the first inflation swap transactions which were cleared in June with initial trades submitted by BNP Paribas, UniCredit and Societe Generale.
Inflation swaps are used to transfer the risk of inflation from one party to another through an exchange of cash flows.
While one party pays a fixed rate cash flow on a notional principal amount, the other party pays a floating rate linked to an inflation index. These contracts are most commonly linked to consumer price indexes.
Besides risk efficiencies, clients benefit from operational savings by reducing fragmentation within a single currency and bundling central clearing across multiple asset classes, says Eurex.
Danny Chart, Eurex’s head of over-the-counter product and clearing business development, says: “We have seen regular dealer activity each month since the first trades back in June. It’s great to build on this momentum and show that there is real end-client demand for the clearing of these instruments at Eurex.
“Building up liquidity in these products will be a gradual process, and we will work closely with both buy- and sell-side participants to manage this development.”
Derek Milner, senior portfolio manager derivatives and hedging at Aegon, adds: “From our perspective, being able to clear a greater range of products at Eurex is an important step forward and will offer real benefits for end-clients such as ourselves. We’re very happy to clear these first trades at Eurex and we will look to further develop exposures over the near to mid-term.”
Tom Prickett, co-head of Europe, the Middle East and Africa rates at J.P. Morgan, concludes: “Acting as an executing broker on trades such as these gives us the opportunity to provide additional liquidity and choice for our clients.”
