As part of the move, Mizuho Bank will be able to benefit from SwapAgent’s offering including centralised trade processing and optimisation.

“Joining SwapAgent as a member is crucial for us to be able to offer our own clients an enhanced service that improves standardisation and efficiency in the cross-currency swap market, as well as reduces operational and credit risk. We look forward to unlocking these capabilities through SwapAgent,” said Kenichiro Kobayashi, head of Europe Treasury department, operating officer at Mizuho.

SwapAgent offers solutions targeting improved standardisation, efficiency and simplicity in the non-cleared derivatives market.

In February, TD Securities joined LCH SwapAgent as first Canadian bank member. Today, 47 dealer entities from 15 countries are currently live at SwapAgent, LCH confirmed.

“As financial institutions across Asia and Japan increasingly seek to benefit more from robust risk management and capital efficiencies, we remain committed to offering our members the processing, margining and settlement benefits that SwapAgent brings,” said Nathan Ondyak, head of SwapAgent at LCH.

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LCH SwapAgent’s member count has now grown to 44, spanning 12 countries, which have holistically registered over $5.9 trillion in notional at LCH SwapAgent in 2023 – with average daily volume (ADV) up 78% year-on-year.

“Welcoming TD Securities as LCH SwapAgent’s first Canadian bank member is a significant milestone, and we look forward to working with them as we continue to receive interest from users in North America,” said Nathan Ondyak, head of SwapAgent, LCH.

“The continued growth of SwapAgent is testament to the processing, margining and settlement benefits that our members derive from the service.”

LCH SwapAgent’s services claim to bring improved standardisation, efficiency and simplicity to the bilateral derivatives market.

Last year, SwagAgent added KfW to its service, having successfully processed the first transport currency trades between KfW and counterparties Bank of America, Commerzbank, Danske Bank and Santander.

Read more: LCH SwapAgent processes first trades for KfW

“We are delighted to be the first Canadian bank member of LCH SwapAgent,” said Jason Cope, executive managing director and head of global fixed income at TD Securities.

“By using the service, we believe our clients will benefit from its robust capabilities and potential reduction in costs and risks associated with the bilateral derivatives market.”

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KfW is amongst the largest end-users of cross currency swaps worldwide and uses bilateral derivative transactions to hedge against interest rate and currency risks.

The Transport Currency settlement methodology allows market participants to use EUR for daily margin payments on cross-currency swaps, alongside providing the benefit of standardised discounting and valuations.

This leverages the footprint of LCH SwagAgent as a trusted third-party in the bilateral derivatives market as it develops solutions that increase standardisation and reduce risk.

“It has been rewarding to work so closely with KfW all the way from idea generation, through to onboarding and finally, adoption,” said Nathan Ondyak, global head of LCH SwapAgent.

“Transport Currency is a unique proposition for derivatives markets that we look forward to developing further in collaboration with market participants.”

SwapAgent has experienced continued growth of its service, surpassing $8 trillion in notional registered since launch. Last year, the service registered record volumes, reaching $2.7 trillion of notional registered for cross-currency volumes across the service.

“We very much welcome the establishment of our cooperation with LCH SwapAgent to explore a novel solution to extend standardisation in cross-currency swap markets,” said Stephan Blanke, head of derivatives, KfW.

“KfW’s funding and hedging activity is based on a broad diversification of business partners. Thus, it makes sense for us to support LCH SwapAgent in increasing liquidity and improving market access for all users of derivatives. It is also a valuable tool for KfW from a risk and pricing perspective.”

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The counterparties to the trade were Unicredit Bank AG and Commerzbank AG.

The extension of LCH SwapAgent’s rulebook to support the DRV German Master Agreement highlights the former’s commitment to supporting the requirements of the German market, fully integrated within the global SwapAgent service.

“We welcome the first trade by Unicredit Bank AG and Commerzbank AG under the DRV German Master Agreement. Extending LCH SwapAgent’s services further demonstrates our commitment to improving standardisation and efficiency and reducing risk in the global non-cleared derivatives market,” said Nathan Ondyak, global head of LCH SwapAgent.  

The latest move follows the extension of the service to support the FBF/AFB Master Agreement under French law which was announced in February last year.

Read more: LCH SwapAgent registers cross currency basis swap between Nordea Bank and Danske Bank

“We are pleased to have used LCH SwapAgent to facilitate the execution of a DRV transaction for the first time. The service provides increased standardisation allowing us to offer further liquidity in the cross-currency swap market to our clients,” said Thomas Rösner, head of financial markets rates at Commerzbank AG.  

“Simplification of trade processing and increased optimisation improves the efficiency of the bilateral derivatives market. We are delighted to have taken part in this milestone first with LCH SwapAgent,” added Pierrick Fenon, head of flow rates derivatives trading at Unicredit Bank AG.   

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The two counterparties to the trade were Nordea Bank and Danske Bank, brokered by ICAP.

LCH SwapAgent said that as a service offering standardisation for the non-cleared derivatives market, the trade highlights its capability to facilitate a coordinated transaction to risk free rates for non-cleared OTC derivatives.

In addition, the transaction underlines LCH SwapAgent’s commitment to supporting the industry’s transition to risk free rates.

“Participating in this landmark trade means we continue to develop liquidity in risk free benchmark rates,” said Morten Rasmussen, head of markets trading at Nordea.

“Through LCH SwapAgent, we look forward to bringing further operational and capital efficiencies to non- cleared derivatives markets in the Nordic region.”

LCH SwagAgent has continued to grow its offering, with $6 trillion in notional registered since it launched in 2017. The service now has 37 counterparties from nine countries, including Nordea Bank and Danske Bank.

“We are pleased to be part of this important trade for the Nordic region and further contribute to the global transition to risk free rates,” said Jeppe Østerby Thomsen, global head of STIR trading at Danske.

“The standardisation benefits LCH SwapAgent brings to the bilateral market means we can further mitigate risk and enhance settlement capabilities.”

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LCH has registered its first SONIA/SOFR cross-currency basis swap between Bank of America and Lloyds Bank Corporate Markets via SwapAgent.

The UK clearing house said the trade was completed ahead of the upcoming discounting and price alignment interest transition to USD SOFR at LCH SwapAgent, which is scheduled for 16 October.

“This latest milestone for LCH SwapAgent demonstrates the service’s capability to facilitate a coordinated transition to risk-free rates for non-cleared OTC derivatives,” said global head of LCH SwapAgent, Nathan Ondyak. “This neatly complements our existing offering which is delivering operational and funding efficiencies to a growing community of members.”

SOFR and SONIA are the alternative benchmarks to Libor for US dollar and UK sterling derivatives. Both are considered best practice as alternative reference rates, following years of controversy and manipulation shrouding the Libor benchmark.

LCH added that the cross-currency swap between SwapAgent members Bank of America and Lloyds highlights its commitment to supporting industry efforts to reform reference rates.

“As a major participant in the sterling rates market, it is important for us to see liquidity develop in the new risk-free benchmark rates,” said head of CCY and USA at Lloyds Bank Corporate Markets, Richard Pattison. “We are happy to contribute to that developing liquidity and welcome the efficiencies SwapAgent brings to the un-cleared OTC derivatives market.”

SwapAgent has seen continued growth in volumes for its offering since launching in 2017, with US$1.12 trillion registered during the first half of 2020 and 18 members now using the service.

LCH has today received third country recognition from the EU markets watchdog to continue providing its clearing services to clients in Europe for 18 months once the Brexit transition period ends on 31 December.

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UK clearinghouse LCH said that €4.5 billion in notional of trades were successful compressed in TriOptima’s multilateral USD/EUR cross-currency swap compression cycle via its triReduce service. LCH SwapAgent and non-SwapAgent trades were combined to achieve maximum benefits, both firms said.

Compression allows LCH’s clearing members to eliminate offsetting trades to reduce notional outstanding and the number of line items in a portfolio. LCH said that capital requirements introduced by the Basel III  leverage ratio have incentivised banks to reduce notional outstanding.

“We’re delighted to have worked with TriOptima to achieve this meaningful reduction in notional outstanding on behalf of our customers,” said Nathan Ondyak, global head of LCH SwapAgent. “As members continue to onboard and use LCH SwapAgent to standardise and improve the processing of non-cleared OTC derivatives, we anticipate that uptake of these compression services will continue to grow.”

In November last year, LCH SwapAgent processed its first swaption trades, which were executed by Deutsche Bank and Nomura. Two swaption trades were completed by the banks, one in EUR and the other in USD.

Swaptions were the latest addition to LCH SwapAgent, which provides processing for the trades denominated in Euros or US Dollars, including cross currency basis swaps, interest rate swaps, inflation swaps and forward rate agreements (FRAs). 

Peter Weible, TriOptima’s co-chief executive, concluded that the company’s partnership with LCH SwapAgent is an important addition to the multiple venues that are already supported by the triReduce compression service.   

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The two swaptions trades completed by both investments banks, one in Euro and the other in US Dollars, were brokered by ICAP, now part of the TP ICAP group, and processed by IHS Markit’s MarkitSERV.

Swaptions are the latest addition to LCH SwapAgent, which provides processing for the trades denominated in Euros or US Dollars, including cross currency basis swaps, interest rate swaps, inflation swaps and forward rate agreements (FRAs).  The clearinghouse said that the European-style swaption gives the buyer the option to enter an interest rate swap contract on a fixed date at a specified fixed rate.

LCH SwapAgent infrastructure also supports valuation for margining purposes, with methodology for Euro swaps based on the NPV of the underlying cleared swap referred to as collateralised cash price settlement.

“We are excited to launch USD and EUR swaptions in partnership with the market,” said Aaron Mayor, head of new product development for rates at LCH. “We support the alignment of swaptions settlement and collateralisation with the cleared swap market and have launched swaptions in SwapAgent with NPV based settlement in both USD and EUR.”

Nomura’s EMEA head of middle office, Chris Wells, commented that the framework provides significant improvements in the processing and settlement of uncleared OTC derivatives. Similarly, Martial Collet-Billion, head of EUR rates exotics trading at Deutsche Bank said that SwapAgent offers multiple benefits to market participants.

“SwapAgent offers multiple benefits to all market participants, including standardised discounting and the balance sheet benefits associated with STM methodology,” Collet-Billion added. “We are continually looking for ways to be more efficient and provide a better service to our clients, and SwapAgent is helping us to achieve that.”

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Citi and Deutsche Bank have become the first counterparties to execute trades via LCH’s SwapAgent service.

The investment banks acted as counterparties to the Swiss Franc-denominated interest rate swap and Euro-denominated inflation swap, having processed the trades through MarkitSERV.

LCH SwapAgent - a service for non-cleared OTC interest rate derivatives - now has 14 dealers including Barclays, Citi, Credit Suisse, Goldman Sachs, Morgan Stanley and JP Morgan.

Nathan Ondyak, global head of LCH SwapAgent, explained the clearing business has seen significant support from the market.

“Through LCH SwapAgent we can extend the efficiencies of centralised clearing to the non-cleared market and we look forward to expanding this offering to include products such as cross-currency swaps in due course,” he said.

Stuart Bancroft, managing director of CVA trading at Citi, added as the non-cleared market for interest rate derivatives becomes more complex, solutions like LCH SwapAgent are welcomed.

“We welcome innovative solutions like LCH SwapAgent that help simplify the bilateral margining process, while enabling market participants to comply with the uncleared margin rules,” he said. 

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