The Japan Securities Clearing Corp. is investigating the possibility of clearing cross currency swaps, according to Takeshi Hirano, director, strategic planning and over-the-counter clearing service. If it goes ahead, it would be the first clearinghouse to clear the swaps.
Speaking on the G20 Commitments: Progress Made, Hurdles Ahead panel at the International Swaps and Derivatives Association’s 2013 Annual Japan Conference at the Ritz Carlton in Tokyo today, Hirano said there are inherent challenges, centered around standardization, technical feasibility, managing product risk and whether there is enough liquidity to obtain reliable prices. Hirano said, “[In] the settlement for the cross currency swaps, we might use CRS bank settlement, but there are some challenges for the CCP to use such settlement infrastructure.”
The JSCC, like other clearinghouses, is a for-profit organization and needs to consider commercial opportunities, Hirano noted. “We understand that we are a very important piece of market infrastructure, but at the same time... we always have to think of the commercial viewpoint to make a judgement.”
The JSCC announced in September it was looking to clear yen-denominated interest rate swaptions and could start clearing interest rate swaps denominated in other foreign currencies next year (DW, 9/10). The firm is looking at introducing the extended capabilities after it launches its client clearing service, slated for next February. The expansions are designed to comply with E.U. regulations in order to meet minimum standards set out in European Market Infrastructure Regulation.
Spokespeople at LCH.Clearnet and CME Clearing did not immediately respond to emails as to whether they are also looking into the possibility of clearing cross currency swaps.