DZ BANK (DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main) has successfully commenced clearing its interest rate swaps (IRS) business through SwapClear, LCH.Clearnet Ltd’s (LCH.Clearnet) market leading over-the-counter (OTC) IRS clearing service. The total number of SwapClear clearing members now stands at 56.
DZ BANK, a corporate and investment bank, is the fourth largest bank in Germany providing centralised services to more than 900 German cooperative banks. Within the Volksbanken Raiffeisenbanken cooperative financial network, which is one of Germany’s largest private-sector financial services organisations, the DZ BANK Group is one of Germany’s leading “Allfinanz” providers for the local cooperative banks with strong market positions. By joining SwapClear, DZ BANK will be able to reduce risk, better manage capital and balance sheet exposures and move a step closer to conforming with emerging global standards. DZ BANK will also be well-positioned to comply with G20 commitments concerning OTC derivatives by the December 2012 deadline.
Dr. Ulrich Walter, DZ BANK’s head of Capital Markets Trading, Fixed Income and Equity commented: “Interest rate swaps are a very important part of our business and clearing will enable us to improve our counterparty risk management and also lead to a more efficient allocation of risk capital."
Michael Davie, CEO of SwapClear said: “We are delighted to welcome DZ BANK to LCH.Clearnet’s SwapClear service where they will immediately benefit from credit and operational risk benefits within a large network of members. We particularly welcome DZ BANK’s adoption of the SwapClear service ahead of upcoming regulatory change and look forward to working with them to broaden participation in this service among the German financial community.”
Established more than 11 years ago, SwapClear is the only truly global clearing service for IRS. Since launch in 1999, it has cleared over 1.5 million OTC IRS trades. SwapClear currently has 56 clearing members. The 950,000 trades in SwapClear have an aggregate notional principal amount of over $295 trillion, with a further $41.5 trillion of cleared transactions removed through multilateral trade compression. It is the only OTC clearing service to have successfully handled a significant OTC default, when it resolved Lehman Brothers’ $9 trillion IRS default in 2008. In that instance, SwapClear’s default management process ensured that more than 66,000 trades in 5 currencies were hedged and auctioned to other clearing members. SwapClear’s process resulted in no loss to any market participants.
In June 2010, following extensive industry consultation, LCH.Clearnet became the first derivatives clearing house in the world to use overnight index swap (OIS) rate curves to discount IRS. This important step not only ensured the highest standards of risk management within a CCP; it has also increased certainty and transparency in the interest rate swap market more generally. This type of industry thought leadership was recognised by Risk Magazine in naming LCH.Clearnet 2011 Clearing House of the Year in its Risk Awards.