Wells Fargo to join LCH.Clearnet’s SwapClear service

09 June 2011

LCH.Clearnet announced today that Wells Fargo Bank NA has signed a letter of intent to join LCH.Clearnet Ltd’s (LCH.Clearnet) SwapClear, a global clearing service for over-the-counter (OTC) interest rate swaps.  By joining SwapClear, Wells Fargo will take the total number of SwapClear clearing members to 54.

According to Adrian Kayari, Wells Fargo’s head of Interest Rate Derivative Trading, “Interest rate swaps are an integral part of our business and clearing will enable us to mitigate counterparty risk and benefit from operational efficiencies. We look forward to leveraging the many facets of SwapClear’s services."

Michael Davie, CEO, SwapClear said; “Wells Fargo is a leading US financial services company and we are delighted they are joining SwapClear.  We will continue to grow our US presence and deliver to US clients the benefits of a local service with the operational and risk efficiencies of a global offering.”

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 53 clearing members.  The 950,000 trades in SwapClear have an aggregate notional principal amount of over $295 trillion, with a further $41.5 trillion of cleared transactions removed through multilateral trade 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 clearing house 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 recognised by Risk Magazine in naming LCH.Clearnet 2011 Clearing House of the Year in its Risk Awards.
 

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To view the press release as a pdf click here.

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.

About Wells Fargo

Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.2 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (wellsfargo.com and wachovia.com), and other distribution channels across North America and internationally. With approximately 280,000 team members, Wells Fargo serves one in three households in America. Wells Fargo & Company was ranked No. 23 on Fortune’s 2011 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially.