Response to cash equity clearing competition in Australia

14 February 2013

We have seen the announcement from the Australian deputy prime minister and treasurer about the government’s intention to defer for two years a decision on any licence application from a CCP seeking to compete in the cash equity market, and we will continue to watch the Australian cash equity clearing market during that time.

We still plan to apply for a licence for an Australian clearing and settlement facility license that would enable LCH.Clearnet to offer its SwapClear OTC interest rate swap clearing to Australian banks, allowing them to join the existing services used by 70 international bank members.
We have also applied to the Australian Securities and Investments Commission for a license to clear energy, commodity and environmental derivatives listed on Australia’s Financial Energy Exchange Group (FEX).

Ends

About LCH.Clearnet

LCH.Clearnet is a leading multi-national 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, foreign exchange derivatives, 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 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.