LCH.Clearnet to accept Ginnie Mae Mortgage Backed Securities as collateral for initial margin cover purposes

London, April 16, 2012

LCH.Clearnet Limited (LCH.Clearnet) is to accept Ginnie Mae Mortgage-Backed Securities (GNMA MBS) as part of its ongoing plans to broaden the range of acceptable initial margin collateral.

The initiative is part of LCH.Clearnet’s recently established Collateral and Liquidity Management (CaLM) service to offer efficient, centralised collateral management services to clients.  Accepting high-calibre collateral such as GNMA MBS offers greater flexibility to clients whilst maintaining robust risk management standards.  Approximately US$260 billion of GNMA MBS will be eligible to be pledged as initial margin.

Founded in 1968 as an entity designed to help mortgage lenders gain access to capital for mortgage loans, GNMA MBS are among the most secure investments in the global capital market. 

“We consider Ginnie Mae mortgage-backed securities among the most secure investments in the global capital market, and we’re pleased to be able to offer clients as much flexibility as possible to meet their margin requirements,” said Andrew Howat, Head of Collateral and Liquidity Management at LCH.Clearnet.  “This addition to our range of acceptable collateral reinforces our strategy to maintain the highest standards of risk management, whilst demonstrating our ongoing commitment to developing our business offering, both in the US, and for our buy side clients.”

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About LCH.Clearnet

The LCH.Clearnet Group is the leading independent clearinghouse 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 clearinghouse sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When a trade is registered with a clearinghouse, that clearinghouse becomes the legal counterparty to the trade, ensuring financial performance of the trading parties; if one of the parties fails, the clearinghouse steps in. By assuming the counterparty risk, the clearinghouse underpins many important financial markets, facilitating trading and increasing confidence within these markets.

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 clearinghouse’s highly experienced risk management teams, which 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.