Australian derivatives shift to centralised clearing

The derivatives market in Australia has experienced a pronounced shift towards centralised clearing, a central aim of regulators since the financial crisis.

The surge in derivatives volumes comes after the country introduced centralised clearing of over-the-counter (OTC) derivatives to comply with a G20 commitment to safeguard the vast off-exchange market.

A clearing house stands between two parties in a trade, ensuring it is completed if one side defaults, and central clearing forms part of Australia's plans to make Sydney an Asian finance hub. Clearing volumes have also been boosted by investors trading more interest rates derivatives; this has happened because of uncertainty over future reductions in overnight borrowing rates set by the Reserve Bank of Australia.

The value of derivatives contracts compiled in the Australian Securities Exchange's (ASX's) derivatives clearing house - one of the largest in the country - has soared, the Sydney-based exchange said on Tuesday.

The exchange cleared A$136bn ($104bn) worth of OTC interest rate derivatives in March, up from just A$6.2bn in the same period a year ago. The total notional value of cleared rates in the year to date reached A$445.4bn compared with A$16.5bn a year ago, it added.

The clearing business has grown rapidly from a very low base in Australia and the ASX has been challenged domestically by LCH.Clearnet, the European clearing house which set up operations in Sydney last year with backing from a group of international banks.

LCH does not split out numbers for Australia, but its SwapClear operation dominates the clearing of all Australian dollar-denominated products. It has cleared swaps with a total notional value of more than $11tn, compared with ASX's $570bn. In the year to date LCH has cleared A$2.3tn in all Australian dollar-denominated swaps.

Increased appetite for swaps, which are used for speculation and hedging against adverse interest rate moves, also reflects uncertainty over future policy changes by the RBA, after a long period of stability.

The central bank cut its benchmark borrowing rate to 2.25 per cent in February, its first such move in 18 months. Although economists expect the RBA to alter borrowing costs to kick-start an economy suffering from the end of a mining investment boom, their forecasts for a move have begun to diverge from those implied by trading in the Australian dollar.

The RBA kept interest rates steady earlier on Tuesday, as expected by the majority of economists surveyed by Bloomberg. But the Australian dollar hit a year-to-date low of 75.7 cents on April 4, just ahead of the RBA's decision, before strengthening by as much as 1.5 per cent after traders reversed their earlier positions.

www.ft.com/tradingroom

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation