Osttra Sees NDF Clearing Volumes Increase
Posted by Colin Lambert. Last updated: July 29, 2022
Post-trade services provider Osttra says the number of cleared non-deliverable forwards processed by its Clearing Connectivity for Foreign Exchange solution has risen by 30.6% in the first half of 2022, compared to the same period in 2021, with a monthly average of 180,559 NDF trades.
The growth was very much driven by a new record high of 213,150 trades processed in March as the Ukraine conflict drove a volatility spike, however Osttra says even excluding March, monthly average NDF clearing volumes are up 25.8% in the first half of 2022, compared to the same period in 2021.
Osttra’s analysis of trading and clearing volumes has also found that each phase of the Uncleared Margin Rules (UMR), regulation that forces changes to the way collateral is posted or collected as initial margin (IM) for OTC derivatives, correlates directly to volume growth. Due to the postponement of phase five in 2020 thanks to the global pandemic, the growth is reflected in 2021, where Osttra says it has seen an increase of 28% versus 4% in 2020.
NDF growth has been steady and generally driven by UMR phases, it adds, saying with the deadline for the final phase looming on 1 September, market participants will need to keep a close watch on their trading activity in order not to breach the $50 million UMR threshold.
“NDF Volume for FX has, in the main, been driven by large dealers, however, there are also some new participants,” says Patrick Philpott, executive director FX business development at Osttra. “These are mainly regional banks and investment management firms looking to gain an edge by clearing their FX portfolios.
“There is a clear uptick in investor manager interest in NDF clearing,” he continues. “Block and allocation workflows are a pain point for which buy-side firms are increasingly seeking solutions. While these are not yet a requirement for asset managers, they are expected to be a requirement for hedge funds if they start to clear in the run up to UMR phase six.”