LCH.Clearnet's SwapClear clears OTC interest rate swaps for BBVA

Madrid, London, 21 July 2011

BBVA has successfully commenced clearing its interbank interest rate swap (IRS) trades through SwapClear, LCH.Clearnet Ltd’s (LCH.Clearnet) market leading over-the-counter (OTC) IRS clearing service. The total number of SwapClear clearing members now stands at 56.

BBVA is a leading Spanish bank offering individual and corporate customers the most complete range of financial and non-financial products and services. BBVA also has a leading franchise in Latin America and it is one of the 15 largest US commercial banks. BBVA employs 107,000 people in over 30 countries around the world; it has more than 47 million customers and 900,000 shareholders.

Miguel Gonzalez Sardinero, global head of interest rates at BBVA explained: “We are committed to contributing to the stability and transparency of the financial system. By joining LCH.Clearnet’s SwapClear service, with its unequalled reputation for clearing IRS, BBVA will be able to reduce counterparty risk and benefit from the advantages that central clearing brings. This move will give BBVA access to the best prices to hedge and manage its large and complex IRS portfolio, which is especially important in the current financial environment, where participants are increasingly concerned about managing risk, and where the market expects to see different prices depending on the quality of the counterparty.”

Michael Davie, CEO, SwapClear said: "SwapClear’s growing membership increases standardisation and transparency in the global IRS market and indicates that the advantages of clearing for OTC markets are being recognised. We are delighted that BBVA has started clearing its IRS business and is able to benefit from SwapClear’s market-leading service ahead of the forthcoming regulatory changes.”

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 56 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.

To view the press release as a pdf click here.  
 

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About BBVA

BBVA is a global financial services group with approximately €550 billion in total assets, 47 million clients, 7,400 branches and 107,000 employees in more than 30 countries. BBVA provides its customers with a full range of innovative financial products and services. The BBVA Group maintains a leadership position in Spain, Mexico, Latin America and the Sunbelt Region of the United States. BBVA is also developing strong operations in Asia, specifically in China, and recently entered the Turkish market with a strategic stake in Turkiye Garanti Bankasi, the leading bank in Turkey.

As of December 2010, BBVA had a market capitalization of €34 billion and it is listed on the primary international stock exchanges including London, NYSE and Madrid. BBVA reported recurrent attributable profit of €4.6 billion in 2010 and ranks among the leading Euro zone banks in terms of ROE and efficiency.

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, 7 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.