World first: 50 year trades cleared by LCH.Clearnet

Market-leading SwapClear service enhanced to meet growing demand

London, 11 May 2010

For the first time 50 year interest rate swap trades (IRS) have been cleared, as LCH.Clearnet Ltd (LCH.Clearnet), the largest clearer of OTC products globally, extends its SwapClear offering.  Market participants can now clear IRS trades denominated in USD, EUR and GBP with maturities of up to 50 years. The move brings greater efficiency and security to the OTC derivatives market, a key area of focus for regulators and legislators worldwide.

LCH.Clearnet is continuing to provide innovative solutions to meet the growing demands of the OTC market and new improvements to SwapClear include:

Extension to 50 years for trades denominated in USD, EUR and GBP.

Extension to 30 years for four more currencies: AUD, CAD, CHF and SEK.

Global operating hours extended from 02:30 to 17:00 EST (07:30 to 22:00 GMT), giving global market participants the capability to register trades for clearing throughout the UK, European and New York business day. 

Range of IRS expanded to include both basis swaps and zero coupon swaps.  Trades with different effective dates on the fixed and floating legs will also be eligible for clearing.

Joe Reilly, director of SwapClear, LCH.Clearnet said: “We are leading the way in reducing systemic risk from the OTC markets by significantly extending the length of trades eligible for clearing. The OTC market is one of the fastest growing areas of our business, with IRS volumes rising steadily and new members joining SwapClear regularly. This highly innovative service, which has led the way in OTC clearing for ten years, is well placed to meet the current global demand and also the strong market demand we expect to see continuing in the future."

Three new clearing members have recently signed up to SwapClear, bringing the total number to 28. In December 2009, LCH.Clearnet was the first clearing house to launch interest rate swap clearing for the buy-side through SwapClear, offering a unique level of security to buy-side clients in the case of a bank default through margin segregation and portability of contracts.
SwapClear continues to consolidate its position as the leading global service for IRS, clearing over 40% of the $342 trillion global market, across 14 currencies. Since launch, in 1999, the service has cleared over 1 million trades.

To view the press release as a pdf click here.

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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.