LCH, a global clearing house, has launched client clearing of credit index options at CDSClear.
J.P. Morgan and BNP Paribas are the first banks to offer this option at CDSClear, enabling access to funding capital and operational efficiencies through clearing.
Client clearing of credit index options brings the benefits of clearing these products to more of the market, including buy-side firms.
Through multilateral netting, clearing reduces gross bilateral counterparty exposures down to a single net exposure to the clearing house and reduces operational risk by enabling a single expiry or exercise instruction per instrument.
Frank Soussan, global head of CDSClear, LCH comments: “LCH was the first credit clearing house to offer credit index options and since launch we have built up a significant liquidity pool in that product.
“We are delighted to broaden the risk management benefits and efficiencies of clearing to include clients. This is part of our continued expansion and innovation at CDSClear to support the market and meet the needs of our customers.”
Gaspard Bonin, deputy head of derivatives execution and clearing at BNP Paribas, says: “This new service further enhances the derivatives clearing solutions we can provide our clients, helping them manage their credit derivatives portfolios more effectively.”
Nick Forgan, managing director at J.P. Morgan, adds: “Clearing provides our clients with an efficient way of mitigating counterparty risk with additional operational benefits. This new service from LCH expands those benefits to credit index options and increases the netting opportunities available to our customers.”
Credit index options available for client clearing at CDSClear are iTraxx Main 5Y OTR and OTR-1 Series, iTraxx Crossover 5Y OTR and OTR-1 Series, CDX.IG 5YR OTR and OTR-1 Series, CDX.HY 5YR OTR and OTR-1 Series.
CDSClear first launched credit index options on iTraxx Europe Main and Crossover indices in 2017 and in 2020, expanding its offering to include Options on CDX.NA IG and CDX.NA HY underlying indices.
CDSClear indicates that it cleared €163 billion of notional in iTraxx Options in 2021, representing a year-on-year increase of 133 per cent.
