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    Swapclear: LCH - Clearnet LTD European Central Bank 9Th July 2009

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    Aleis Riquelme
    LCH.Clearnet is a clearinghouse that provides clearing services for over-the-counter interest rate derivatives. SwapClear, its interest rate swap clearing service, was established in 1999 and has grown significantly. It cleared over $178 trillion in notional value as of June 2009. SwapClear is working to expand its services to include additional product types and to allow direct clearing for buy-side clients in addition to dealers. The document outlines SwapClear's services, membership criteria, and contact information. It also discusses how SwapClear successfully handled the default of Lehman Brothers in 2008 without any losses to members.

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    Swapclear: LCH - Clearnet LTD European Central Bank 9Th July 2009

    Uploaded by

    Aleis Riquelme
    100 views9 pages
    LCH.Clearnet is a clearinghouse that provides clearing services for over-the-counter interest rate derivatives. SwapClear, its interest rate swap clearing service, was established in 1999 and has grown significantly. It cleared over $178 trillion in notional value as of June 2009. SwapClear is working to expand its services to include additional product types and to allow direct clearing for buy-side clients in addition to dealers. The document outlines SwapClear's services, membership criteria, and contact information. It also discusses how SwapClear successfully handled the default of Lehman Brothers in 2008 without any losses to members.

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    46808851-Swap-Clear

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    LCH.Clearnet is a clearinghouse that provides clearing services for over-the-counter interest rate derivatives. SwapClear, its interest rate swap clearing service, was established in 1999 and has grown significantly. It cleared over $178 trillion in notional value as of June 2009. SwapClear is working to expand its services to include additional product types and to allow direct clearing for buy-side clients in addition to dealers. The document outlines SwapClear's services, membership criteria, and contact information. It also discusses how SwapClear successfully handled the default of Lehman Brothers in 2008 without any losses to members.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    100 views9 pages

    Swapclear: LCH - Clearnet LTD European Central Bank 9Th July 2009

    Uploaded by

    Aleis Riquelme
    LCH.Clearnet is a clearinghouse that provides clearing services for over-the-counter interest rate derivatives. SwapClear, its interest rate swap clearing service, was established in 1999 and has grown significantly. It cleared over $178 trillion in notional value as of June 2009. SwapClear is working to expand its services to include additional product types and to allow direct clearing for buy-side clients in addition to dealers. The document outlines SwapClear's services, membership criteria, and contact information. It also discusses how SwapClear successfully handled the default of Lehman Brothers in 2008 without any losses to members.

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    SwapClear

    LCH.Clearnet Ltd European Central Bank

    9th July 2009

    Private and Confidential

    LCH.Clearnet: unique breadth of expertise


    Turquoise NYSE Arca Europe Chi-X Europe BATS Trading Europe SecFinex PLUS Markets Brse Berlin Equiduct Trading
    SmartPool Luxembourg Stock

    ICAP Electronic Broking eSpeed ETCMS MTS LIFFE EDX London VIEL & Cie Prominnofi Repo SWapsWire SWIFTNet Accord HKMEx LIFFE London Metal Nodal BlueNext Energy & Freight Brokers

    Exchange
    NYSE Euronext London Stock Exchange SWX Europe Ltd

    Exchange

    39
    Securities

    41

    Exchange Traded Financial & Equity Derivatives

    51
    Fixed Income

    22
    Swaps

    43
    Commodities

    25
    Energy

    LCH.CLEARNET
    Euroclear UK & Ireland Euroclear Belgium Euroclear France Euroclear NL Euroclear Bank SIS Clearstream International Clearstream Frankfurt VPS NCSD Interbolsa Monte Titoli VP Vaerdepapincentralen Banque National de Belgique Commodities Cash DTCC

    Indicates # of Market Members. Data accurate at time of print but is not legally binding. Please refer to lchclearnet.com for current membership status.

    Private and Confidential

    SwapClear: a succesful clearing solution


    Established in September 1999 as IRD G4 10 yr service Developed into a rich G14 30 Yr service for IRD market Since June 2001, partnered with OTCDerivNet * Planned introduction of buy side access through SwapClear clearing member in H2 2009 * OTCDerivNet is a limited liability company owned by 14 banks which work with LCH.Clearnet in the development of the post trade environment for the benefit of the OTC derivative industry

    June 2009:

    USD 178 trillion


    Notional (sides)

    Private and Confidential

    SwapClear: service coverage


    Today Under development

    Vanilla Interest Rate Swap up to 30 yrs Overnight Index Swaps

    Extending SwapClear to buy side Tenor extension to 50 yrs and beyond for major currencies (August 2009) Extending operating hours to cover global time scale (Q3 2009) Forward Rate Agreement Cross Currency Swaps

    Euribor and Libor Basis Swaps


    Compounding Swaps 14 Currencies eligible for clearing:
    USD AUD SEK EUR HKD DKK JPY NZD PLN GBP CAD ZAR CHF NOK

    Expanding Currency set


    Planning the next generation of clearing technology

    Trade registration from Markit Wire: 08:30-18:00 GMT / BST Regular Trade Tear-ups using Tri-Optima

    Private and Confidential

    SwapClear :dealer membership criteria


    Clearing Member Eligibility Current Clearing Members
    Bank of America NA* BNP Paribas* Credit Suisse International* Credit Suisse Securities (Europe) Limited Commerzbank AG Dresdner Bank AG HSBC Bank PLC* HSBC France Societe Generale* UBS AG* Citibank NA* Deutsche Bank AG* Goldman Sachs Bank USA* JP Morgan Chase Bank NA* Morgan Stanley Capital Services, Inc* The Royal Bank of Scotland PLC* Calyon Nomura International PLC ABN AMRO Bank NV Rabobank NV Natixis SA ING Bank NV
    * OTCDerivnet Member

    Swap Portfolio minimum size of USD1 trillion Minimum capital USD5 billion in Clearing Entity or in Parent providing Guarantee Credit Rating single A or better Margin multipliers applied if existing member downgraded below A Compulsory participation in Default Management Process

    Merrill Lynch International Bank Limited* Banca IMI S.p.A. Barclays Bank PLC*

    Private and Confidential

    SwapClear : for the buy-side


    The SwapClear default management process demonstrated its resilience in September 2008 by successfully handling Lehmans USD9 trillion interest rate swap default

    The market requested that we extend the benefits of the existing dealer to dealer SwapClear offering to the buy-side
    The buy-side needs the ability to:
    Reduce counterparty exposure

    Achieve portability of contracts


    Segregate initial margin Gain the operational benefits of net settlement with the continued capability to manage post-trade events.

    Private and Confidential

    SwapClear : default management process (DMP)


    House positions
    Convene Default Management Group DMP Principle: Defaulter pre-funds own demise Resources available to manage default Hedge defaulters portfolio NPV is transferred with portfolio Portfolio Split into books and currency units
    IM + Excess Cover of Defaulter Defaulters own Default Fund Contribution LCH.Clearnets own funds (up to 20mn) Remaining Default Fund

    Client positions
    Transfer client positions to pre-nominated alternate SwapClear members

    Separately lodged initial margin cover is protected

    Risk Neutral Portfolio Auctioned to Surviving clearing members

    In extremis allocate remainder of defaulters portfolio to all clearing members

    Up to 50mn per non-defaulting SCM LCH.Clearnet Capital

    Legal perfection is being sought to enable transfer of IM and positions to a nondefaulting SwapClear member.

    Lehman Default (Sep 08): All auctions were successful 66,000 trades with a total $9tr notional portfolio No Default Fund contributions were touched

    Private and Confidential

    Management of Lehman interest rate Swap default


    Exposure
    $9 trillion Lehman Brothers Special Financing

    Inc. Swaps
    in excess of 60k trades, hedged & sold off at auction

    $1 trillion Lehman Brothers International

    Europe Repos, Equities, exchange traded commodity, energy & financial derivatives
    No loss to members

    35% of Lehman IM

    Capital

    Up to 50mm per non-defaulting SCM

    Default Fund

    Pre-tax Profit (to 20m)

    Defaulting Members DFC

    Initial Margin

    Variation Margin

    All GCMs Contribute

    Daily & Intra-day

    Lehman Default

    Lehmans failure cost its trading partners in the OTC CDS market hundreds of millions of dollars, whilst its trades backed by clearing houses were unwound without incident Moodys Investors Service

    Private and Confidential

    SwapClear contacts
    LCH.Clearnet Ltd Aldgate House 33 Aldgate High Street London EC3N 1EA www.lchclearnet.com

    Joe Reilly Director, SwapClear +44 (0)20 7426 3746 joe.reilly@lchclearnet.com David Gardiner Sales and Marketing +33 (0)233 61 46 30, +33 (0)6 8084 0555, +44 (0)7534 189 241 david.gardiner@lchclearnet.com Lois Blazy Manager SwapClear Customer relations and implementation +44(0)20 7426 7452 lois.blazy@lchclearnet.com

    Martin Hadfield SwapClear Business Manager +44 (0)20 7426 7608 martin.hadfield@lchclearnet.com Tony Ng SwapClear Commercial Services +44 (0)20 7426 7386 Tony.ng@lchclearnet.com

    Private and Confidential

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