LCH.Clearnet Overview - April 2010
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LCH.Clearnet Overview
April 2010LCH.Clearnet Background
LCH.Clearnet Group Ltd:
The world’s leading independent central counterparty
Owned 83% by users and 17% by exchanges
Operates a constrained profit model
The largest and most experienced global clearer of OTC
markets
Clears for major international trading platforms and
exchanges
2SwapClear: The Successful Global Swap Clearing Solution
Global leader in Interest Rate Swaps clearing
Established in September 1999
Outstanding notional of $212 trillion (end March 2010)
Largest OTC IRS product range of any Clearing House, globally
RCH regulated by the FSA in the UK
DCO regulated by the CFTC in the USA
SwapClear Total Trade Sides Notionals ($bn)
250,000
200,000
150,000
100,000
50,000
-
3SwapClear: Product Range
Current State Planned Enhancements
Clears over 40% of all OTC IRS Q2 2010
Offers buy-side clearing facilities Extension of operating hours to 17.00 EST (22.00 GMT/BST)
Opening hours for trade registration: 07:30-19:30 Tenor extension to 50 yrs & beyond for USD, GBP, EUR and to 30
GMT/BST (14.30 EST) yrs for AUD, CAD, CHF, SEK
14 currencies eligible for clearing: Single currency Basis Swaps
USD EUR JPY GBP Zero Coupon Swaps
AUD HKD NZD CAD Q3 2010
CHF DKK SEK NOK
Forward Rate Agreements
PLN ZAR
Next generation clearing technology
Both Libor and Fed Funds Indices 2011
USD, EUR, GBP, JPY Vanilla IRS out to 30 years Expansion of Currency set
USD, EUR, GBP, CHF Overnight Index Swaps (OIS) Additional products TBD e.g.
Compounding Swaps Options, callable, cancellable
T+0 Clearing Cross Currency Swaps
Trade Compression for Inter-dealer trades
Trade Backloading – Legacy IRS portfolios can be cleared
4Default Management Protection 5
SwapClear: Risk and Default Management
SwapClear is set up so that managing a default is a Business As Usual event
All clearing members default management responsibilities are proven and legally binding
SwapClear has a clearly defined and comprehensive list of market counterparties who are already committed
to bidding on a swaps portfolio in a default scenario
Fully tried and tested Default Management Process (Lehman’s etc.)
Default management process designed to cope with the hypothetical defaults of a number of members over
several scenarios
Default Management follows an established process and timeline; portfolio hedging followed by a competitive
auction
No ‘fire sale’. In the unlikely event of an uncompetitive auction LCH reserves the right to allocate positions at
market rates.
Bi-annual fire drills to ensure our process remains robust
Driving test for new members to prove their operational capability
6SwapClear: Operations
Operational Risk
Robust Business Continuity Plan (London Bombings)
Regular Fail over Testing and Disaster Recovery Plan
High Level Security and IT Information Security Company regulations
Mandatory security checks and high level of compliance management given regulatory oversight (FSA, CFTC)
Interoperability
Follow best market practice and remain agnostic to interface protocols
Membership
Open to all market participant by direct and indirect membership
All SwapClear clearing members have the financial and operational capacity and otc IRS expertise to successfully
handle a default scenario
SwapClear membership criteria specifically focused on efficiently handling defaults and minimising the risk of an SCM
default
7SwapClear Default Protections: OTC Risk Partition
First three levels of protection are not mutualised
1. Membership Criteria. SwapClear membership
Membership Criteria criteria focussed on efficiently handling defaults
and minimising risk of an SCM default in the first
place
Variation Margin 2. Variation Margin. Prevent member losses
building up over time so as to minimise
potential exposure at default
Initial Margin 3. Initial Margin. To ensure LCH.Clearnet Ltd has
sufficient financial resources to cover potential
losses and close out in a default situation
Defaulter’s own Default Fund Contribution
Default Funds and £20mm capital and reserves are
mutualised across LCH.Clearnet Ltd. Note that CDS
LCH.Clearnet’s capital & reserves to £20mm is handled by LCH.Clearnet SA and not
LCH.Clearnet Ltd.
Remaining Default Fund (currently £600m)
Additional Provision of £50mm per SwapClear
SwapClear Undertaking (£50mm per SwapClear Member) member (currently 28 members). This is not
mutualised across other products
Replenishment of LCH.Clearnet’s Capital Optional Replenishment
8SwapClear: Unique Feature eliminates Credit Risk
Client positions & margin are segregated from house and other client accounts at LCH.Clearnet
LCH.Clearnet This unique feature eliminates credit
Segregated from other clients
House Client Client risk between clients and clearing
Segregated from House
Position & Position & Position & member and unknown risks of other
Margin Margin Margin
clients.
2
Defaulting SCM Alternate SCM
3
House Client Client Client
Position & Position & Position & Position &
Margin Margin Margin Margin
1 3
Client A Client
ClientX Client A
Client
9SwapClear Membership: 28 SCMs
Bank of America NA ING Bank NV
Banca IMI S.p.A JP Morgan Chase Bank NA
Barclays Bank PLC Merrill Lynch International Bank Limited
BNP Paribas Morgan Stanley Capital Services, Inc
Credit Agricole Natixis SA
Citi Nomura International PLC
Commerzbank AG Nomura Global Financial Products
Credit Suisse International Rabobank International
Credit Suisse Securities (Europe) Limited The Royal Bank of Scotland PLC
Deutsche Bank AG Royal Bank of Canada
Goldman Sachs Bank USA Royal Bank of Scotland NV
Goldman International Société Générale
HSBC Bank plc Standard Chartered
HSBC France UBS AG
Additional firms to join in 2010
10SwapClear – US & UK contacts
New York Office London Office
LCH.Clearnet Limited LCH.Clearnet Limited
14 Wall Street Aldgate House
4th Floor, Suite 4G 33 Aldgate High Street
New York, NY 10005 London, EC3N 1EA
USA UK
Eddie Watts Phillip Atkinson
Senior Country Advisor Senior Manager SwapClear Sales & Marketing
+1 212 513-8299 +44 (0) 20 7426 6389
Eddie.watts@lchclearnet.com phil.atkinson@lchclearnet.com
Andrew McGuire Kim Short
SwapClear Sales & Marketing SwapClear Sales & Marketing
+1 212 513-8288 +44 (0)20 7426 7939
andrew.mcguire@lchclearnet.com kim.short@lchclearnet.com
11Disclaimer
The contents of this document are a broad overview of the Please note that the SwapClear Client Clearing Service is still
SwapClear Client Clearing Service and have been provided to you subject to regulatory approval in certain jurisdictions and,
for information purposes only. therefore, the service described in these slides is subject to change.
Nothing in this document should be considered to be legal Your notice is drawn to the Notice to End Users of SwapClear Client
advice. There is no substitute for analysing the Regulations, Rules Clearing Services at www.lchclearnet.com
and Procedures of LCH.Clearnet as well as the other transaction
documentation. Accordingly, clients may not rely upon the contents
of this document and should seek their own independent
legal advice. Copyright © LCH.Clearnet Limited 2009 -2010.
All rights reserved. No part of this document may be copied,
The information and any opinion contained in this whether by photographic or any other means, without the
document, does not constitute investment advice or a prior written consent of LCH.Clearnet Limited.
personal recommendation with respect to any applicable SwapClear is a registered trademark of LCH.Clearnet Limited
securities or other financial instruments. This document has
not been prepared for a specific client and accordingly no
reliance should be placed on it. Nothing in this document
should be taken as a public offer under any applicable
legislation or an offer to sell or to buy any applicable
securities or financial instruments.
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