UPDATE 1-CME Group launches interest rate swap clearing in London

03/18/2013

* Financial Services Authority approves launch

* Venture challenges LCH.Clearnet

* Major firms already trading

CHICAGO, March 18 (Reuters) - CME Group Inc has launched a clearing service for interest rate swaps in London, just one week after U.S. regulators began to phase in long anticipated mandates for rate swap clearing on CME's home turf, the exchange operator said on Monday.

The U.S. exchange operator's London-based CME Clearing Europe won approval from the U.K.'s Financial Services Authority for its first foray into clearing over-the-counter (OTC) financial derivatives. It has been clearing energy swaps in London for about two years.

The venture challenges LCH.Clearnet, which clears 90 percent of bank-to-bank interest rate swaps and has been expanding in the United States. The London Stock Exchange is buying LCH.

BNP Paribas, Credit Suisse, Goldman Sachs , HSBC, JP Morgan Securities, Nomura International and The Royal Bank of Scotland have traded CME's interest rate swaps so far, CME said. Citibank, Morgan Stanley and UBS will begin trading "in the coming weeks," according to the exchange operator.

CME's launch offers dealers an "increased choice of venues at which to clear their OTC positions in line with regulatory requirements," said Paul Twohey, European head of OTC clearing for Credit Suisse.

CME launched OTC interest rate swaps for seven currencies.

It comes a week after U.S. regulators began phasing in mandates for rate swap clearing, rules that result from the 2010 Dodd-Frank legislative overhaul of Wall Street.

Starting on March 11, hedge funds and other large investors had to start guiding their trading in derivatives through clearinghouses.

"The expansion into IRS clearing deepens our offering, providing access to financial derivative clearing through our European platform, accommodating a broad base of international customers," said Andrew Lamb, chief executive officer of CME Clearing Europe.

CME said it plans to launch over-the-counter foreign exchange and credit default swaps in London later this year.



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