Lloyds Bank Corporate Markets begins clearing through SwapClear

-- SwapClear membership reaches 50 --

London - 24 March 2011

Lloyds Bank Corporate Markets (Lloyds TSB Bank Plc) has successfully commenced clearing its interest rate swaps (IRS) business through SwapClear, LCH.Clearnet Ltd’s (LCH.Clearnet) leading IRS clearing service. The total number of SwapClear clearing members now stands at 50.

Lloyds Bank Corporate Markets, part of the Wholesale division at Lloyds Banking Group, delivers corporate banking and risk management services to financial institutions and corporate customers.

Bruce Kellaway, Head of Swaps Trading at Lloyds Bank Corporate Markets said, “Clearing interest rate swaps is a key step for Lloyds Bank Corporate Markets. The credit and operational efficiencies that result from joining an IRS clearing service such as SwapClear, allow us to further build competitive solutions for our clients.”

Michael Davie, CEO of SwapClear at LCH.Clearnet commented, “We are pleased to welcome Lloyds Bank Corporate Markets to SwapClear. The growing interest in SwapClear highlights the appeal of our excellent clearing model and the importance of reducing systemic risk in the marketplace. Lloyds Bank Corporate Markets joins us at an opportune time as regulators look to strengthen financial markets and we welcome the liquidity and expertise that they bring.”

Established more than 11 years ago, SwapClear is the only truly global clearing service for IRS. Since launch in 1999, it has cleared over 1.5 million OTC IRS trades. SwapClear currently has 50 clearing members and its portfolio contains 880,000 trades with a notional value in excess of $266 trillion, down from $305 trillion as a result of terminating $39 trillion cleared IRS transactions through on-going compression. It is the only OTC clearing service to have successfully handled a significant OTC default, when it resolved Lehman Brothers’ $9 trillion IRS default in 2008. In that instance, SwapClear’s default management process ensured that more than 66,000 trades in 5 currencies were hedged and auctioned to other clearing members. SwapClear’s process resulted in no loss to any market participants.

In June 2010, following extensive industry consultation, LCH.Clearnet became the first derivatives clearinghouse in the world to use overnight index swap (OIS) rate curves to discount IRS. This important step not only ensured the highest standards of risk management within a CCP; it has also increased certainty and transparency in the interest rate swap market more generally. This type of industry thought leadership was recognized by Risk Magazine in naming LCH.Clearnet 2011 Clearing House of the Year in its Risk Awards.

- Ends -

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Lloyds Bank Corporate Markets is part of the Wholesale division of Lloyds Banking Group plc. It provides comprehensive expert financial services to businesses ranging from privately-owned firms to multinational corporations and financial institutions. As well as offering the expertise and capabilities our clients need to compete successfully in the marketplace, we are proud of the relationships we build with our customers. We work closely with them to understand their business and offer the best financial solutions to meet their distinctive needs.

The wide range of services and innovative solutions we can deliver includes:

• dedicated relationship banking;
• capital market funding;
• debt finance;
• treasury and risk management services;
• structured finance solutions;
• asset finance;
• leasing;
• company registration and employee share schemes;
• competitive e-trading facilities;
• import and export trade finance;
• tailored cash management solutions; and
• structured credit investments and securitisation facilities.

About LCH.Clearnet

LCH.Clearnet (then The London Produce Clearing House Limited) began clearing commodity futures in 1888.  Today it 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, 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, reducing risk, facilitating trading and increasing confidence within the market.

Initial and variation margin (both collateral) is collected from clearing members; should they fail, this margin is used to fulfil 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;  in IRS, 6 times intraday.  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.