The Australian Securities Exchange has stepped up pressure on would-be competitor LCH Clearnet in the emerging market for interest-rate derivatives clearing, signing up investment groups and state treasuries to help develop a service for them by the end of the year.
The ASX is seeking to sharpen the difference between itself and LCH Clearnet by providing a domestic service that it says will provide local banks and asset managers with greater security over their assets than the international service proposed by its rival.
Nine Australian funds managers and state government treasuries, which manage about $750 billion, have been working with the exchange to develop the service.
They include AMP Capital, Colonial First State Global Asset Management, Future Fund, NSW Treasury Corporation, QIC, Queensland Treasury Corporation, Suncorp Bank, Treasury Corporation of Victoria and Victoria Funds Management Corporation.
The funds are supporting the development of a local offering but have not committed to use the service exclusively.
"AMP Capital is supportive of the ASX's development of a domestic derivatives clearing capability as it will bring competition to the market and offer Australian financial institutions a number of clearing options," said Peter Sipek, AMP Capital's director, investment Services.
Regulators around the world want to bring the bilateral trade in interest-rate swaps and other products on to exchanges and central clearing houses to ensure better reporting and monitoring of risks such as those that led to the global financial crisis.
Clearing houses stand between the buyer and seller of a financial product and guarantee the completion of a trade in the event of default by either party.
In Australia the trade in over-the-counter derivatives was worth $14.8 trillion last year, more than 10 times that of equities traded, cleared and settled on the ASX, and it is a significant source of potential new revenue for clearing houses.
The ASX and LCH Clearnet, which is majority-owned by the London Stock Exchange, have signed letters of intent with major banks in Australia to develop the service. Several international banks operating in Australia already use LCH Clearnet services elsewhere in the world -- as well as for trades with Australian institutions -- but Australia's domestic banks are said to be the biggest users of interest-rate swaps to manage their loan books and thus a significant new market for clearing houses.
The ASX said it would integrate the OTC business with existing clearing services, offering users the ability to potentially reduce the amount of money they would have to set aside against potential defaults and offset it against other exposures.
The ASX said its local presence would gives users confidence that their collateral and the clearing service would be regulated under Australian law.