LCH.Clearnet to accept bonds issued by KfW as initial margin collateral

London, 20 October 2011

LCH.Clearnet Limited (LCH.Clearnet), as part of its ongoing plans to broaden the range of acceptable margin collateral, is to accept bonds issued by the Kreditanstalt für Wiederaufbau (KfW) from November 1, 2011.

The initiative will offer greater flexibility to clients whilst maintaining robust risk management standards. Approximately €150 billion of securities will be eligible to be pledged as initial margin.

Founded in 1948, KfW ranks among the 10 largest financial institutions in Germany and is recognised as one of the world’s most active bond issuers. Debt securities issued by KfW have been backed by the explicit, direct and unconditional guarantee of the Federal Republic of Germany since 1998 and are considered to be of the highest credit quality, rated AAA by all three major agencies, with a stable outlook.

Andrew Howat, Head of Collateral and Liquidity Management at LCH.Clearnet said: “Extending the number of issuers acceptable as margin collateral within the highest of risk management standards brings additional flexibility and security to the markets we serve. Their regular issuance, strong liquidity and explicit government guarantee mean that KfW securities are a natural form of collateral.  KfW is seen as Germany’s flagship development agency, considered to be of the highest quality among European Government related entities.”

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To view the press release as a pdf click here.

About LCH.Clearnet

The LCH.Clearnet Group 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, CDS 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.