LCH.Clearnet names BNY Mellon as US collateral custodian

02 December 2011

LCH.Clearnet Limited (LCH.Clearnet), the leading independent clearing house, today named Bank of New York Mellon (BNY Mellon) as an additional US collateral custodian with which members and their clients may lodge collateral.

New regulation in the US and Europe recognises the crucial role that clearing plays in ensuring the safe functioning of markets.  This has resulted in a drive to clear a wider variety of financial instruments, including OTC derivatives, which has led to a focus on collateral management.

Collateral is lodged by members of a clearing house, with a third party, both at the outset of a trade and thereafter on a daily basis in order to manage market risk and ensure that any variation margin is paid throughout the duration of the trade.  As a custodian for LCH.Clearnet, BNY Mellon will provide members and their clients with a choice of provider both for lodging collateral at the commencement of a trade and for managing the allocation of funds to either party due to market variation throughout the lifecycle of the trade.

Daniel Maguire, head of SwapClear US said, ‘We are very pleased to be able to name BNY Mellon as a collateral custodian.  This provides our members and their clients with a choice of custodian with which to lodge collateral, whilst maintaining our stringent approach to risk management.’

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets.  BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team.  It has $25.9 trillion in assets under custody and administration and $1.2 trillion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day.

It is the oldest banking corporation in the United States, tracing its origins to the establishment of the Bank of New York in 1784 by Alexander Hamilton. BNY Mellon has also repeatedly earned industry recognition as a top-performing custodian across multiple measures.

"We have the operational infrastructure and expertise to handle the collateral management needs of clients globally and we are extremely pleased to work with LCH.Clearnet to provide additional choice and capabilities to their members,” said John Vinci, global head of product management and strategy managing director for BNY Mellon broker-dealer services.

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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, energy, freight, interbank interest rate swaps, credit default 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.