US clients to benefit from FCM access to SwapClear

London, 22 June 2010

LCH.Clearnet Ltd (LCH.Clearnet) is set to give US clients access to its market leading interest rate swap clearing service, SwapClear, via a Futures Commission Merchant (FCM) model, subject to regulatory approval.  LCH.Clearnet intends to launch FCM access to SwapClear in late 2010.

The current SwapClear service offers clients market leading protection, including the option of full segregation of client margin and positions.  The extension of the service and introduction of the FCM model is designed to maximise choice for customers.  The FCM model will offer:

• Access to the market leading IRS clearing service via a familiar model

• All the protections of an FCM model, including:

o Portability of client collateral and positions
o Arrangements will be governed by New York law
o Initial margin collateral held in the US

Roger Liddell, CEO, LCH.Clearnet said: "This extension of the SwapClear service reflects our commitment to customer choice. We want to provide customers with the access model that best suits their needs, whilst preserving the integrity and risk mitigating benefits of SwapClear.

“This development reflects feedback from key customers and the broad thrust of proposed legislative changes.”

As market participants worldwide seek to mitigate their counterparty risk, SwapClear’s market leading global position has been further strengthened. Established in 1999, SwapClear is the only truly global clearing service for IRS, now clearing over 40% of the market and USD218 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.

LCH.Clearnet is both a Financial Services Authority (FSA) Recognised Clearing House and a Commodity Futures Trading Commission (CFTC) registered Derivatives Clearing Organization (DCO). 
 

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, credit default 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.