LCH.Clearnet receives approval for its SwapClear client clearing service in Ireland and Switzerland

London, 08 April 2010

LCH.Clearnet Ltd (LCH.Clearnet) has received approval from the U.K Financial Services Authority (FSA) to extend its market leading interest rate swap (IRS) clearing service, SwapClear. Buy-side firms can now access the service through clearing members based in Ireland and Switzerland. The extension means that institutional investors are able to clear through members based in six countries; the U.S, the U.K, France, Germany,  Ireland and Switzerland.

LCH.Clearnet is regulated in the U.K by the FSA and in the U.S by the Commodity Futures Trading Commission (CFTC), and its SwapClear service offers unique levels of protection to buy-side clients, in the event of a default of a clearing member, through margin segregation and portability of contracts.

Alberto Pravettoni, managing director, commercial services said: “We have over ten years experience of successfully clearing IRS and are the only clearing house to have managed an OTC default. Recently, we have seen a remarkable growth in demand for our SwapClear service and this latest development broadens the number of clearing members through which the buy-side are able to access the benefits of IRS clearing.”

SwapClear currently clears approximately 40% of the global interest rate swap market and has USD212 trillion in notional trades outstanding.  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.

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To view the press release as a pdf click here.

About LCH.Clearnet

LCH.Clearnet is the leading independent clearing house group, serving major international exchanges and platforms, as well as a range of OTC markets.  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.

A clearing house sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade.  When the trade is registered with a clearing house, it becomes the legal counterparty to the trade, ensuring the financial performance; if one of the parties fails, the clearing house steps in.  By assuming the counterparty risk, the clearing house underpins many important financial markets, facilitating trading and increasing confidence within the market.

Initial and variation margin (or collateral) is collected from clearing members; should they fail, this margin is used to fulfill their obligations.  The amount of margin is decided by the clearing house’s highly experienced risk management teams, who assess a member’s positions and market risk on a daily basis.  Both the soundness of the risk management approach and the resilience of its systems have been proven in recent times.

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