Investment Operations

Eurex clears first inflation swap transactions


BNP Paribas, UniCredit and Societe Generale the first banks to clear inflation swaps through Eurex Clearing

Central counterparty Eurex Clearing confirmed this morning that it had cleared its first inflation swap transactions. Initial trades were submitted by BNP Paribas, UniCredit and Societe Generale, demonstrating a continued commitment from international banks to meet end client demand and access more OTC products at the CCP.

Inflation swaps are used to transfer the risk of inflation from one party to another through an exchange of cash flows. While one party pays a fixed rate cash flow on a notional principal amount, the other party pays a floating rate linked to an inflation index. These contracts are most commonly linked to consumer price indexes. According to their literature, Eurex offers the clearing of zero-coupon inflation swaps (ZCIS) for the eurozone Harmonized Index of Consumer Prices excl. Tobacco (HICPxT), the French Consumer Price Index (FRCPIx), and the UK Retail Price Index (UK RPI).

“Having these major international banks clear their first trades on our platform is a great first step for this product,” said Danny Chart, Eurex’s Head of OTC Product & Clearing Business Development: “It shows clear support for our efforts to build an alternative EU27-based liquidity pool. And it further underlines our goal of becoming the global home of the euro yield curve,” he added.

Based on both risk and cost considerations, a greater number of banks and buy-side clients are striving to distribute their portfolios across clearing houses. Emmanuel Issman, Head of Structured Fixed Income Derivatives at UniCredit explains that the allocation of exposure across CCPs is better from a risk perspective: “We see end clients increasingly favoring a second choice and seeking to clear OTC products through Eurex Clearing.”

Besides risk efficiencies, clients benefit from operational savings by reducing fragmentation within a single currency and bundling central clearing across multiple asset classes. “If you only need to use one pool of collateral then you only get one margin call, and so on,” said Stephane Salas, Head of European Inflation Trading at BNP Paribas. “This is going to be a big opportunity for buy-side firms to further increase efficiency,” Salas added.