BNY Eyes OTC Clearing Moves

By Eleni Himaras


BNY Mellon Clearing in New York is looking into clearing memberships with major clearinghouses to give clients access to over-the-counter interest rate swap and credit default swap clearing, Sanjay Kannambadi, CEO, told Derivatives Week. This includes Intercontinental Exchange's ICE Trust and LCH.Clearnet's SwapClear; though both of these have membership hurdles that BNY Mellon does not currently clear.

BNY opened its clearing arm in late June and it has become a clearing member for CME Group's listed futures and International Derivatives Clearing Group's interest rate swap facility. IDCG can only shadow clear OTC interest rate derivatives by converting new or existing transactions into economically equivalent listed International Derivatives Exchange Swap Future contracts. This means that BNY Mellon clients must convert their OTC trades to listed trades in order to clear them.

"We are very keenly looking into the over-the-counter space both in clearing and execution," Kannambadi told Derivatives Week. He said his firm is already the largest global clearer of U.S. treasuries and believes it would be a natural fit to function in a similar clearing capacity in the OTC space.

He supports the mission of the Swaps and Derivatives Markets Association, advocating for open access to clearing for more banks. He acknowledged the argument that the risk management teams of the largest dealers and the largest clearing members should be involved in decision-making, but added "it's important to broaden that group." "It has to be fair and representative of the marketplace," he said.

Kannambadi dismissed the notion that firms aside from the major five dealers, JPMorgan, Goldman Sachs, Citigroup, Bank of America Merrill Lynch and Morgan Stanley could not become clearing members because they could not take on the adequate positions if one clearing member were to fail. He said clearinghouses could easily proportionally allocate assets based on size to those various clearing members. Furthermore, he said that if a transaction is properly margined, the clearinghouse would not need to dip into any default fund to unwind that deal.