Clearing Services Expand to Fulfill G-20 Mandates

Terry Flanagan

LCH.Clearnet Ltd and LCH.Clearnet LLC, the U.K. and US based subsidiaries of the world’s largest multinational clearing house, are implementing Swift MX standard messaging for securities and cash collateral instructions provided to the clearing house by members.

The move eliminates the need for manual intervention, improving the efficiency of the collateral management process by allowing clearing members to provide instructions from their own systems.

“Regulatory change, the mandatory clearing of OTC derivatives and the evolution of different asset protection and segregation models will soon require more collateral to move efficiently, from end users through the clearing members to CCPs,” said Martin Ryan, global head of operations at LCH.Clearnet.

Clearing members are able to exchange automated, standardized information securely and reliably, with the potential for other CCPs to re-use the message types.

In addition, members will benefit from increased transparency and straight-through processing within their middle and back offices.

“A cornerstone of LCH.Clearnet’s collateral services strategy is to leverage market infrastructure providers to provide efficient, scalable and standardized solutions throughout the complete end-to-end collateral processing chain,” Ryan said. “By introducing this innovative messaging interface with Swift, we are streamlining collateral processes for our clients and providing the scale and operational leverage for an increase in collateral velocity industry-wide.”

Noted Arun Aggarwal, head of UK, Ireland and Nordics at Swift, said: “The current emphasis on central clearing has changed the scope of the requirement for collateral messaging and created an opportunity for Swift to extend its solution to CCPs. We look forward to working with LCH.Clearnet to improve the speed, transparency and efficiency of collateral management activities for its customers.”

Separately, the Australian Securities Exchange (ASX) has cleared its first OTC derivatives transaction on its OTC clearing service that uses the Calypso System as the core clearing platform.

The ASX OTC Derivatives Clearing Service launched on July 1, 2013, with client clearing for Australian clients expected to be commercially launched in the second quarter of 2014.

ASX, one of the world’s top 10 listed exchange groups, uses the Calypso platform to support OTC derivatives dealer-to-dealer clearing of standardized Australian Dollar (AUD) denominated interest rate swaps.

ASX offers a cross-margining service on Calypso, enabling clearing members to offset initial margin between their interest rate swaps and 24 ASX exchange-traded interest rate futures products positions, thereby reducing the overall portfolio margin requirements.

Key factors in the selection of the Calypso platform for OTC clearing were Calypso’s market leadership in OTC derivatives clearing software and experience in working with 9 global CCPs. The Calypso system provides end-to-end clearing operations, risk management and connectivity between CCPs and clearing member firms.

“ASX chose Calypso as a provider with deep experience in OTC derivatives clearing to help deliver the best solution to meet the needs of the Australian marketplace,” said Peter Hiom, deputy CEO of ASX.

The Australian dealer community has expressed support for this service, as it retains their collateral onshore and facilitates capital efficiency via the clearing of OTC and exchange-traded derivatives together. ASX plans to offer AUD interest rate client clearing by the second quarter of 2014, and is working with foundation customers comprising major Australian asset managers and state government treasuries.

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