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LCH.Clearnet adopts OIS discounting for $218 trillion IRS portfolio

London, 17 June 2010

LCH.Clearnet Ltd (LCH.Clearnet), which operates the world’s leading interest rate swap (IRS) clearing service, SwapClear, is to begin using the overnight index swap (OIS) rate curves to discount its $218 trillion IRS portfolio.

Previously, in line with market practice, the portfolio was discounted using LIBOR.  However, an increasing proportion of trades are now priced using OIS discounting.  After extensive consultation with market participants, LCH.Clearnet has decided to move to OIS to ensure the most accurate valuation of its portfolio for risk management purposes.  LCH.Clearnet already uses OIS rates to price the rate of return on cash collateral.

From 29 June 2010, USD, Euro and GBP trades in SwapClear will be revalued using OIS.

Roger Liddell, chief executive, LCH.Clearnet said: “Accurate pricing is essential for prudent risk management.  With the market moving increasingly to OIS, it was important for us to consider the implications of this.  Our move to OIS discounting demonstrates our commitment to the highest standards of risk management and the sophistication of our SwapClear service.”

SwapClear, the only truly global clearing service for IRS, offers innovative solutions to meet the growing demands of the OTC markets. In December 2009, LCH.Clearnet was the first clearing house to launch interest rate swap clearing for the buy-side clients through SwapClear, offering a unique level of security to clients in the case of a bank default through margin segregation and portability of contracts.

The resilience of SwapClear’s default management process was demonstrated in September 2008 when it successfully handled Lehman Brothers’ USD9 trillion interest rate swap default. The highly effective default management process ensured that over 60,000 trades were hedged and auctioned off to other clearing members in a timely fashion and that the default was managed well within the margin held and with no recourse to the default fund.

To view the press release as a pdf click here.


About LCH.Clearnet

LCH.Clearnet is the leading independent clearing house group, the world’s largest clearer of OTC derivatives and in addition serves major international exchanges and platforms.  It clears a broad range of asset classes including: securities, exchange traded derivatives, energy, freight, interbank interest rate swaps and euro and sterling denominated bonds and repos; and  works closely with market participants and exchanges to identify and develop clearing services for new asset classes.

LCH.Clearnet is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates.

In 2009 LCH.Clearnet cleared 1.6 billion contracts, including €479.8 billion of repo and bond exposures.