Jul 14, 2015
Eurex Clearing
Byron Baldwin: Inflation Swap clearing – margin and capital efficiencies for the buy side and the sell side
EurexOTC Clear will expand its IRS product scope to include Zero Coupon Inflation Swaps (ZCIS) for the Euro Zone Harmonized Index of Consumer Prices excl. Tobacco (HICPxT), the French Consumer Price Index, excl. Tobacco (FRCPIx) and the UK Retail Price Index (UK RPI) to commence clearing from 3 August 2015.
There will be a booking and maintenance clearing fee waiver to all Clearing Members and Registered Customers for ZCIS from 3 August 2015 to 30 June 2016. That means no cost of entry for EurexOTC Clear Clearing Members to clear inflation swaps and no annual fixed fee. ZCIS clearing has been available in simulation since 9 March 2015 as has running ZCIS, ZCIS/IRS or ZCIS/IRS/listed portfolio margin calculations in the EurexOTC Clear Simulation MarginCalculator.
ZCIS will be margined under Eurex Clearing's innovative Prisma portfolio margining methodology within the fixed income liquidation group that includes IRS and fixed income and money market listed derivative products giving both the buy side and sell side alike potential for significant margin and capital efficiencies by clearing all three products through one CCP. It does not make sense for a buy side or sell side firm to birfurcate its book by clearing IRS, ZCIS and listed derivative products at different CCPs because of the portfolio cross margining benefits/savings that can be generated:
The examples above look at the cross margin savings of clearing 1), various inflation tenor spreads, for example, EUR HICPxT 7 year - 9 year spread and 2), various real rate positions between IRS and ZCIS, for example, receive 2 year fix Euro IRS / pay 2 year fix HICPxT inflation.
Byron Baldwin, Senior Vice President, OTC Clearing at Eurex Clearing, London.
