VPS Clearing ASA

VPS Clearing ASA is the most recent of VPS Holding ASA’s subsidiaries.
Although this company’s predecessor has a history going back 10 years,
it only became part of the VPS Group on 1 September 2006.

So 2007 will be VPS Clearing’s first year of operation, and expectations are high. But how will this subsidiary complement the VPS Group’s services? We spoke to CEO Christian Sjöberg.

What is actually VPS Clearing’s business area, Mr Sjöberg?
Put simply, it’s a clearing house for customers trading in derivatives and commitments related to financial instruments. We act as counterparty to these customers, so they’ve no need to relate to each individual actor. That simplifies their transactions. We assume counterparty risk, and employ systems that reduce risk for all parties involved. We service the entire Nordic derivatives market in collaboration with the Oslo Stock Exchange, Stockholm Stock Exchange and the UK’s EDX London Ltd.

What were the first months like for a newcomer to the VPS Group?
Being part of the VPS Group is a major advantage. Here we get a chance to be our own specialist unit, at the same time as we can draw on important shared resources that enhance our expertise.

The derivatives market has not really reached maturity in Norway, and is heavily influenced by the underlying market.

The high level of activity in the wider economy has generated good results for us – periods of high volatility are generally best for derivatives trading.

In 2006 we saw particularly buoyant growth in OTC products and in our securities borrowing and lending products.

Our first four months were otherwise marked by major changes. On 1 September we joined the VPS Group, on 1 November we substantially expanded our risk capital, and on 27 November we and our members brought into use an entirely new clearing system.

Why increase your risk capital?
Our job is to be a central counterparty to actors in the derivatives market. To do this in a credible manner, we need to show capital strength. That’s why we have contracted insurance with Radiant Asset Assurance Inc., of USD 60 million. That gives us counterparty capital of about NOK 500 million, and a basis for substantial growth ahead.

Where do you expect this growth to materialise?
In addition to the market in general, we expect a gradual increase in activity on the part of institutions - but this market moves pretty slowly, so it’s not going to happen over night. We also expect foreign participants to step up their activity; they are getting keener on trading and clearing directly, rather than through hubs. We can offer these customers local competence. Those closest to the market know it best.

You said you have a new clearing system?
That’s right. We now have a highly efficient system from OMX Technology
– the same as that used by most actors worldwide. It’s more parameterdriven
and faster, with better solutions for ourselves and far better functionality for the customer. It means we have a competitive platform to work from.

Speed is becoming ever more important. Customers are far less patient now than just a few years ago. Competitors and solutions are much more numerous, and time to market is a key requisite for survival.

Developments ahead at the company?
There will be a greater focus on business development. Whereas our current business is largely equity index derivatives and securities borrowing and lending, we want to develop the interest rate derivatives market as a third leg to stand on.

I also feel that the market would do well to give closer attention to derivatives as a hedging instrument, to shield portfolios in a downturn. Far too few market participants insure their capital. Fund managers and other institutional customers who have not hedged their positions should do so in 2007.