LCH.Clearnet welcomes Commodity Futures Trading Commissions's proposed rules for clearing OTC derivatives

London, 1 October 2010

—Venerable Clearinghouse Looks Forward to Reviewing CFTC’s Proposal—

London, UK (October 1, 2010) – LCH.Clearnet, the global leader in interest rate swap clearing, congratulates the CFTC on issuing today the first series of proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The global clearinghouse has worked closely with the CFTC, Congress and others during the debate of the Dodd-Frank bill with a particular focus on the requirements for derivatives clearing organizations with respect to governance arrangements and mitigation of potential conflicts of interest.  LCH.Clearnet will immediately begin a thorough review of the CFTC’s proposals and looks forward to working with the Commission during the comment period and final implementation of the proposed rules.

“LCH.Clearnet welcomes Chairman Gensler and the CFTC Commissioners’ hard work in crafting this proposal,” said Roger Liddell, CEO of LCH.Clearnet. “We look forward to an in-depth review of their proposal and will lend vocal support to any regulation that brings greater transparency and risk reduction to the world’s financial markets.”

LCH.Clearnet Ltd. currently clears over 40% of the IRS (interest rate swap) market representing trades with a total notional principal of $223 trillion in 14 currencies; of which circa $85 trillion is in US dollars.  LCH.Clearnet is expanding its presence in the U.S. marketplace to meet the increasing demand for its services catalyzed by the Dodd-Frank financial reform law.  

“Our corporate mission has always been to reduce risk and foster stability within the global financial system and in particular the OTC derivatives market,” said Mr. Liddell.  “Our hope is that the CFTC’s proposal will take major steps towards preventing another financial crisis from occurring.”

LCH.Clearnet has planned several initiatives in the U.S. market that it will be rolling out in 2010 to provide increased options and capabilities to its U.S. based clientele, including a 24-hour clearing service and the introduction of a Futures Commission Merchant (FCM) model to its SwapClear system.  Pending regulatory approval, LCH.Clearnet expects FCM access will be available before the end of the year and will offer protections including margin collateral being held in the U.S., portability of client collateral and positions, and arrangements governed under New York State law.

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, commodities, energy, freight, 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.