OTC Client Clearing Service

Clearing of interest rate derivatives

The European Market Infrastructure Regulation (EMIR) defines counterparties and products that are subject to the so-called clearing obligation via central counterparties.

Commerzbank is a clearing member of LCH Ltd and Eurex Clearing AG, offering clients access to the most important clearing houses on the European market.

What is clearing?

Derivative transactions concluded between two parties outside a trading venue (stock exchange) can only be settled between these parties. Clearing is different. For OTC derivative transactions, there are two ways of settlement and settlement: they are settled directly between the two parties to the transaction. Or they are transferred to central clearing. The clearing house (so-called central counterparty) and the clearing service providers then step between the parties and assume the rights and obligations of the other party. Example:

  • Bank A and Company B enter into an interest rate swap under which A has to pay the variable rate and B the fixed rate.
  • The interest rate swap is to be cleared via Eurex Clearing AG.
  • If this interest rate swap is transferred to clearing at Eurex, the contract roles change as follows:
    • A is a member of Eurex Clearing AG. A therefore no longer pays the variable interest directly to B, but to Eurex Clearing AG (clearing house) and receives the fixed interest rate agreed in the swap from there in return.
    • B also has to deal with another opponent now. Since B is not himself a member of Eurex Clearing AG, B commissions Bank C with the clearing service. This means that B pays the fixed interest rate to the clearing house via C and receives the variable interest – again via C.

Why clearing?

  • Derivative transactions cleared via central counterparties are capital-friendly, as reduced risk weights can be applied here
  • Cleared derivative transactions and the associated collateral are segregated from other clients and the clearing member and thus offer greater protection in the event of counterparty default
  • Standardised OTC derivatives, which are subject to the clearing obligation, are mostly traded via platforms and are therefore cheaper than bilaterally concluded transactions

Clearing via Commerzbank – your benefits

  • Onboarding Expertise – Provide legal, project and technical support for easy integration into your current systems and processes.
  • Client portal including real-time collateral management, trade reporting, enables customized reports that can be executed at the times set by the client and delivered via SFTP in various forms, including Excel, CSV and PDF.
  • Dedicated clearing support – A dedicated OTC clearing team based in Frankfurt ensures that regulatory requirements for OTC derivatives clearing are met reliably and with minimal impact on your business activities, internal resources and infrastructure.