Adam Kurpiel at SocGen looks at potential....>

EUROPE: Adam Kurpiel at SocGen looks at potential changes in the Eurex-LCH

basis, which has widened to 3.15bp at the 30Y tenor.

- The basis exists because of a Eurex bias toward payers, principally in the 30Y

tenor as German banks hedge their mortgages.

- However, central clearing of pension funds (due by 16 August 2018) and Brexit

could bring that basis lower.

- Kurpiel says that Eurex is working hard to attract the pension fund clearing

business. he adds "Eurex is also preparing the central clearing of repo

operations for the buy side, expected to be operational from early 2018. This

will facilitate, for the buy side and pension funds in particular, collateral

transformation for cash margin coverage, and in particular variation margin

funding." Pension fund inclusion inside Eurex should reduce the payer bias.

- Brexit will mean that LCH becomes a "third-country clearing house" and there

are proposals to force EUR swap clearing in the EU. SocGen make the point "Given

the uncertainties ahead, more and more European accounts may chose to clear with

Eurex." The case of French insurers is under particular regulatory spotlight.