Clearing house interoperability is "crackers", says clearing head

Interoperability for clearing of OTC derivatives including credit default swaps, which has been championed by some corners of the industry, is unlikely to become a reality for many years, according to Michael Davie, CEO of SwapClear, which is owned by LCH Clearnet.

"When I talk to regulators and governments the word that comes up all the time is interoperability," Davie said at an Isda conference yesterday. "But anybody who thinks interoperability is a salvation in the near term is crackers. At best the road to OTC interoperability is very long."

While it might be desirable for a domestic CCP operating in global market place to operate as a global CCP, differences in jurisdictions and legal infrastructures meant it was unlikely to happen "in our professional lifetime," Davie said.

Interoperability would enable one party to a CDS trade to clear at CME Clearing while the other clears at ICE Clear, for example. After some hesitation earlier in the year, regulators opted to include in European Market Infrastructure Regulations an interoperability clause for cash equities, but failed to include a matching provision for OTC derivatives.

Davie's view was backed by other clearing house operators speaking at the Isda regional conference in London.

"The G20 said one of their key concerns was interconnectedness - but in  fact interoperability is the same thing," said Paul Swann, CEO of ICE Clear Europe. " Do we really want to introduce a new form of connectivity into the financial system?"