BNP Paribas, Deutsche Bank, Goldman Sachs, J.P. Morgan and LBBW are backing a move by Eurex into European short-term interest rate derivatives, a market dominated by Intercontinental Exchange's London-based venue.

Deutsche Boerse-owned Eurex Clearing said the banks are backing its plan to extend its partnership programme for interest rate swaps, which incentivises banks to clear their swaps with Eurex’s clearing house, to cover for the first time European short-term interest rates.

Eurex Clearing plans to cross-margin the short-term interest rate (STIR) derivatives against the longer-dated European derivatives (where the German exchange is strong) and Eurex’s growing interest rates swaps (IRS) clearing book.

The Frankfurt-based group said on Wednesday the STIR partnership programme will go live to coincide with the relaunch of Eurex’s Euribor futures and options in the fourth quarter of this year.

Matthias Graulich, a member of the Executive Board at Eurex Clearing, said: “The extension of the Partnership Program is the latest step in Eurex's efforts to provide the market with greater choice and bring more systematically relevant business into the EU. It helps customers not only to diversify risk across central counterparties (CCPs), but also to benefit from comprehensive cross-product margin efficiencies, lowest funding costs via the broadest range of securities collateral and attractive terms for Euro cash collateral.”

The exchange group said the new Euribor products, Eurex’s existing three-month interest rate future referencing the European risk-free rate, the longer dated futures, €uro-based repos and the related swaps all clearing under one roof is a compelling proposition that should offer significant margin savings to customers.

David Feldmann, head of Markets D/A/CH at Deutsche Bank, said: “The new expanded program complements Eurex’s comprehensive offering of Euro-denominated short- and long-term interest rate futures and options, OTC IRS and repo products.”

European authorities have been pushing hard post-Brexit to get more European interest rate swaps clearing within Europe so they remain under the control of European regulators. The Eurex move into STIRs is seen as the next step in the effort to reduce Europe’s reliance on non-European markets.

Guillaume Bioche, head of European rates automated market-making at BNP Paribas, said in statement: “Adding EUR STIR futures and options is a logical extension for Eurex in European derivatives. We can expect benefits and efficiencies across the EUR interest rate curve and across listed and over-the-counter (OTC) markets.”

Eurex said €uro STIR derivatives clearing has been identified by the European Securities and Markets Authority (ESMA) as being of “substantial systemic importance for the EU’s financial stability”. The exchange said STIRs fall within the scope of European measures proposed in December 2022 to reduce over-reliance on certain third country clearing houses, described by Graulich in March as a "neat compromise".

Jan Scheffel, co-global head of STIR Trading at Goldman Sachs, said on Wednesday: “Eurex is an EU-based exchange and clearing house which is EMIR authorised as ‘QCCP’ (qualifying central counterparty). We are happy to expand our long-standing partnership with Eurex into STIR futures.”

Eurex Clearing said firms can now register their interest to join the new program and those firms that register before the end of July will benefit from an “extra reward”.

The German exchange announced in November last year its latest Euro clearing incentive scheme, rewarding new active accounts in over-the-counter interest rate swaps, overnight index swaps, basis swaps or zero coupon inflation swaps for the calendar year 2023.

The European Commission extended in February 2022 its equivalence ruling that allows UK clearing houses to support European clients until June 2025.

ICE Futures Europe is the dominant market for three month Euribor. The London-based exchange traded 111 million lots of three month Euribor futures and 20 million lots of three month Euribor options in the first four months of this year, according to ICE.

Eurex dominates the longer-end of the curve in European interest rate futures. The German exchange traded in the first four months of this year 52 million lots of the two-year Schatz future, 59 million contracts of the five-year Bobl and 74 million lots of the Bund, which extends to seven years and beyond, according to that group.