OTC Derivatives Clearing and SwapClear

PL International recently completed an extensive legal analysis for a bulge bracket investment bank on OTC Clearing. The five month assignment also included a detailed legal analysis of the LCH's SwapClear client clearing documentation which is based on the ISDA Master Agreement.

OTC Derivatives Clearing is evolving rapidly as various deadlines are starting to become effective with the following relevant areas for our clients.

SwapClear Client Clearing Documentation based on the ISDA Master Agreement.

Clients of SwapClear members can now participate in the clearing of interest rate swaps through members of SwapClear. Many buy side clients are now positioning themselves to signing up to this documentation in time for the deadline in 2012. If a Clearing Broker becomes insolvent, the documentation is unique insofar as it facilitates the transfer of client collateral directly to the client and not to the insolvent estate of the Clearing Broker.

We are currently advising various buy side customers on the implementation of the SwapClear Client Clearing documentation.

Clearing of OTC derivatives products through Futures and Options Association standard documentation.

Some commodity OTC derivatives on exchanges such as ICE, are now being accommodated through the Futures and Options Association standard documentation.

Dodd-Frank Act in the US has partially become applicable with some of the deadlines applicable on UK and European firms

Central Counterparty Clearing working groups

Certain Bank members of LCH Clearnet and ICE are participate in working groups through organizations such as OTCDerivnet to discuss rules and procedures applicable to OTC Derivatives clearing. On the completion of these discussions the relevant client clearing documentation will be finalised and implemented.

Other planned OTC Clearing includes:

Proposed Credit Default Swap clearing on LCH Clearnet SA

ForexClear on LCH Clearnet Ltd

FX Clear through CME and possibly ICE Clear Europe

See also our article published in Thomson Reuters Accelus on OTC Derivatives Clearing (Click for Article).