Goldman Sachs has begun to offer foreign exchange derivatives clearing under London-based clearing house LCH Group’s ForexClear.
The fifth-largest bank in the U.S. by assets said Thursday that its clients would benefit from the trade-clearing service in the form of better risk management and operations. LCH is majority-owned by the London Stock Exchange.
“We’re pleased to offer LCH as a clearing service to our clients so we can further help them manage counterparty risk, while achieving operational efficiencies across a broad range of FX products,” said Alicia Crighton, Goldman Sachs head of prime services clearing.
ForexClear also notes that it also uses multilateral risk netting to reduce portfolio exposure and keep cost margins lower.
The ForexClear service provides client and dealer-to-dealer clearing services for currency non-deliverable forwards, products in which counterparties take a bet on one currency but settle in a different agreed-upon one, most often the U.S. dollar. It also offers dealer-to-dealer clearing for deliverable foreign exchange options, spot and forwards.
“We are delighted to welcome Goldman Sachs as the latest bank to go live with our Futures Commission Merchant and international clearing broker models,” said Paddy Boyle, global head of ForexClear, LCH. “This significantly broadens the range of firms through which clients are able to access FX clearing at LCH.”
Billing itself as “the first 24-hour over-the-counter FX clearing service,” ForexClear launched in 2012 aiming to provide global currency markets with a dedicated service for clearing non-deliverable forwards. It offers clearing for 95% of the marketplace.
“Foreign exchange markets are shifting to a cleared environment,” LCH notes. “With interest rate and index credit derivatives already subject to mandatory clearing across the G-20 countries, regulators have noted their desire for non-deliverable forwards to become cleared.”
After initially boasting surging second-quarter trading revenues driven by coronavirus pandemic-related volatility, New York-based Goldman Sachs this month slashed its earnings by $2 billion to $373 million due to a highly anticipated $3.9 billion settlement with the Malaysian government. The July deal saw the bank acknowledge misconduct by two former employees involved in the 1Malaysia Development Berhad corruption scheme, in which a group of high-level Malaysian government officials allegedly misappropriated $4.5 billion from the state development fund.
At $13.3 billion, net revenues were still 41% higher than a year ago, the bank noted.
“Net revenues in global markets were significantly higher, across both fixed income, currency and commodities,” it said, “reflecting strong client activity in intermediation and financing.”