Credit Suisse, Goldman Sachs and JP Morgan clear first SOFR swaps with LCH

Major investment banks clear the first US interest rate swaps using US Libor alternative benchmark SOFR.

The London Stock Exchange Group’s central counterparty (CCP) LCH has cleared its first interest rate swaps referencing the newly introduced US alternative to the Libor benchmark. 

Credit Suisse, Goldman Sachs and JP Morgan were among the first participants to clear the Secured Overnight Financing Rate (SOFR) swaps with LCH, which the clearinghouse said is testament to its support of global rates reform. 

“The US dollar interest rate derivatives market is the largest in the world by many measures, and the introduction of SOFR as a new alternative reference rate marks a seminal moment for the industry,” said Michael Davie, global head of rates at LCH.

SOFR was introduced earlier this year as an alternative benchmark to Libor for US dollar derivatives and other financial products. It was first published by the New York Federal Reserve Bank in April and is now considered best practice following years of controversy and manipulation shrouding the Libor benchmark.

“The transition to SOFR is an important element in the global rates reform effort, which we are pleased to support,” added Akash Agrawal, a USD swaps trading team participant at Credit Suisse. “Being among the first participants to clear SOFR swaps is significant for us, as we look to work with the market to develop liquidity and support a seamless move to alternative reference rates.”

LCH said it introduced clearing of SOFR swaps in response to client demand as the new interest rate benchmark is rolled out. The clearinghouse added that market participants clearing SOFR swaps can achieve margin benefits by offsetting their positions against Libor derivatives using the same rates default fund at LCH.

“The transition to using SOFR is hugely significant both for the US and the global derivatives markets, as clearing SOFR swaps will be a key component in developing a liquid market for this product,” JP Morgan’s co-head of global rates, Thomas Pluta, concluded. 

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