LCH.Clearnet
Encyclopedia
LCH.Clearnet is an independent clearing house
based in Europe that serves major international exchanges and platforms, as well as a range of OTC
markets. LCH.Clearnet clears approximately 50% of the $348 trillion global interest rate swap market, and is the second largest clearer of bonds
and repos in the world, providing services across 13 government markets. In addition, LCH.Clearnet clears a broad range of asset classes including: commodities, securities, exchange traded derivatives
, CDS
, energy and freight
.
As a clearing house, LCH.Clearnet sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When the trade is registered with LCH.Clearnet, it becomes the legal counterparty to the trade, ensuring the financial performance; if one of the parties fails, LCH.Clearnet steps in. By assuming the counterparty risk, LCH.Clearnet underpins many important financial markets, facilitating trading and increasing confidence within the market. Initial and margin
(or collateral) is collected from LCH.Clearnet members; should they fail, this margin is used to fulfil their obligations. The amount of margin is decided by LCH.Clearnet’s risk management teams, who assess a member’s positions and market risk on a daily basis.
LCH.Clearnet Group is regulated as a Compagnie financière by the French Prudential Supervisory Authority
and as a recognised Clearing House by the Financial Services Authority
in the UK. LCH.Clearnet is 83% owned by its users and 17% by the exchanges that it serves.
or central counterparty services in the following markets:
LCH.Clearnet clears commodities such as non-ferrous metals, plastics and steel that are exchange traded on the London Metal Exchange
, and NYSE Liffe as well as a broad range of futures and options contracts covering soft and agricultural products. It also clears over-the-counter products include OTC gold, coal, steel and iron ore and fertilizer swaps.
LCH.Clearnet SA’s Eurozone CDS service was launched in response to regulatory and market demand, initially covering European indices, with the intention of expanding the offering. The CDS service provides full STP multilateral clearing, reduced counterparty risk and post-trade anonymity and encompasses the core requirements as determined by key industry and policy groups, including ISDA, CESR, the ECB and the European Commission.
s.
and the US electricity trading on the Nodal Exchange.
LCH.Clearnet SA provides services for Bluenext Futures EUA, future contracts on European Union Allowances and Bluenext Futures CER, futures contracts on Certified Emission Reductions.
(LSE), SIX Swiss Exchange, BATS Europe, Equiduct & PLUS Markets Group
(PMG), Chi-X Europe and Chi-East.
LCH.Clearnet SA clears transactions executed on NYSE Euronext, Bourse de Luxembourg, Equiduct and SecFinex.
LCH.Clearnet SA provides clearing services covering French, Italian and Spanish Government debts, on cash and repo
transactions traded by financial institutions including Euro-MTS, MTS-France, MTS Italy, ICAP
(BrokerTec) and Tullett Prebon
, and trade providers such as the Euroclear Trade Capture and Matching System (EUROCLEAR's matching system), and Viel/Tradition.
LCH.Clearnet Limited’s RepoClear service was established in partnership with leading banks in 1999, as the first multi market centralised clearing and netting facility for some 13 European government repo
and cash bond markets, and a range of pan-European €GC Baskets. As of 2010 monthly volumes averaged c. €11 trillion, and RepoClear cleared cash bond and repo trades in the following markets: Austrian, Belgian, Dutch, German, Irish, Finnish, Portuguese, Slovakian, Slovenian, Spanish and UK government bonds
. Additional markets served include: German Jumbo Pfandbriefe and Supranationals, Agency and Sovereign.
In June 2010 LCH.Clearnet launched a clearing service for the containerised freight market. The service provides an independent clearing service for the registration of OTC Container Freight Swap Agreements (CFSAs) for four of the most actively traded routes out of Shanghai.
Launched in 1999, SwapClear initially cleared plain vanilla interest rate swaps in four major currencies. Today, it clears swaps in 14 currencies; USD, EUR, and GBP out to 50 years, AUD, CAD, CHF, SEK and vanilla JPY out to 30 years and the remaining 6 currencies out to 10 years. It also clears OIS out to 2 years in USD, EUR, GBP and CHF.
In December 2009 SwapClear launched a new Client Clearing Service, a first for the buy-side community to access clearing interest rate swaps. The service offers unique levels of security to clients and has added functionality to support the segregation of client portfolios and margin.
In September 2008, LCH.Clearnet's Christian Lee, then Head of Risk for Rates and Equities, successfully managed Lehman Brothers
’ US$9 trillion interest rate swap default, comprising over 66,000 trades, by implementing SwapClear’s default management process. The default was fully resolved well within the margin held and at no loss to other market participants.
LCH.Clearnet’s centrally cleared CFD (ccCFD) service, in conjunction with Chi-X Europe, are an alternative to the traditionally over-the-counter traded CFDs and is line with the European Commissions’ aim to increase the proportion of cleared OTC contracts.
Clearing house (finance)
A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions...
based in Europe that serves major international exchanges and platforms, as well as a range of OTC
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
markets. LCH.Clearnet clears approximately 50% of the $348 trillion global interest rate swap market, and is the second largest clearer of bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
and repos in the world, providing services across 13 government markets. In addition, LCH.Clearnet clears a broad range of asset classes including: commodities, securities, exchange traded derivatives
Exchange-traded derivative contract
Exchange-traded derivative contracts are standardized derivative contracts that are transacted on an organized futures exchange....
, CDS
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
, energy and freight
Freight derivative
Freight derivatives, which includes Forward Freight Agreement , container freight swap agreements and options based on these, are financial instruments for trading in future levels of freight rates, for dry bulk carriers, tankers and containerships...
.
As a clearing house, LCH.Clearnet sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When the trade is registered with LCH.Clearnet, it becomes the legal counterparty to the trade, ensuring the financial performance; if one of the parties fails, LCH.Clearnet steps in. By assuming the counterparty risk, LCH.Clearnet underpins many important financial markets, facilitating trading and increasing confidence within the market. Initial and margin
Margin (finance)
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
(or collateral) is collected from LCH.Clearnet members; should they fail, this margin is used to fulfil their obligations. The amount of margin is decided by LCH.Clearnet’s risk management teams, who assess a member’s positions and market risk on a daily basis.
LCH.Clearnet Group is regulated as a Compagnie financière by the French Prudential Supervisory Authority
French Prudential Supervisory Authority
The French Prudential Supervisory Authority is an independent administrative authority, which monitors the activities of banks and insurance companies in france...
and as a recognised Clearing House by the Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
in the UK. LCH.Clearnet is 83% owned by its users and 17% by the exchanges that it serves.
History
LCH.Clearnet traces its roots back to both the London Clearing House, established in 1888, and the Paris based Clearnet, established in 1969. Both developed from clearing commodity transactions and expanded the products they covered over the year. They merged in 2003 to form LCH.Clearnet.London Clearing House
- 1888 - London Clearing House (LCH) is established to clear commodities contracts in London.
- 1980 - Ownership of LCH passes to a consortium of six British Banks.
- 1981 - LCH begins to clear contracts for the International Petroleum ExchangeInternational Petroleum ExchangeThe International Petroleum Exchange, based in London, was one of the world's largest energy futures and options exchanges. Its flagship commodity, Brent Crude was a world benchmark for oil prices, but the exchange also handled futures contracts and options on fuel oil, natural gas, electricity ,...
(IPE) - 1982 - LCH begins to clear contracts traded on LIFFE
- 1987 - LCH begins to clear contracts traded on the London Metal ExchangeLondon Metal ExchangeThe London Metal Exchange is the futures exchange with the world's largest market in options, and futures contracts on base and other metals. As the LME offers contracts with daily expiry dates of up to three months from trade date, along with longer-dated contracts up to 123 months, it also...
(LME) - 1996 - Majority ownership of LCH transfers to the whole clearing membership, with the LME, IPE and LIFFE acquiring minority ownership
- 1996 - Introduction of clearing for cash equities
- 1997 - Introduction of clearing for Gas
- 1999 - Introduction of clearing for SwapSwap- Finance :* Swap , a derivative in which two parties agree to exchange one stream of cash flows against another* Barter- Technology :* Swap space, related to a computer's virtual memory subsystem...
s and RepoRepoRepo may refer to:* Repurchase agreement, a financial instrument* Repo 105, an accounting maneuver* Repossession of collateral for a defaulted loanIn computing:...
s - 1999 - Introduction of clearing for power
- 2001 - LCH begins to clear the London Stock ExchangeLondon Stock ExchangeThe London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
's automated order book trades - 2002 - LCH begins to clear ICE energy contracts
Clearnet
- 1969 - Banque Centrale de Compensation SA is established to clear contracts traded in Paris commodity markets
- 1990 - Banque Centrale de Compensation SA becomes a subsidiary of MATIFMATIFMATIF SA is a private corporation which is both a futures exchange and a clearing house in France. It was absorbed in the merger of the Paris Bourse with Euronext NV to form Euronext Paris...
, and is the first organisation in Europe to clear both cash and derivatives - 1998 - Bourse de Paris takes control of Matif. Clearnet launches a clearing service for French government securities and is the first organisation in Europe to permit remote clearing.
- 1999 - Restructuring of the French markets, all the regulated markets in Paris are listed by a single body, the Société des Bourses Francaises, trading under the name of Euronext ParisEuronext ParisEuronext Paris is France's securities market, formerly known as the Paris Bourse, which merged with the Amsterdam, Lisbon and Brussels exchanges in September 2000 to form Euronext NV, which is the second largest exchange in Europe behind the UK's London Stock Exchange...
. Clearnet is spun off as a subsidiary of Euronext and becomes the clearing house for all products traded in the Paris markets. - 1999 - Introduction of clearing service for French government bonds
- 2000 - EuronextEuronextEuronext N.V. is a pan-European stock exchange based in Amsterdam and with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom. In addition to equities and derivatives markets, the Euronext group provides clearing and information services...
merges with the Amsterdam Stock ExchangeAmsterdam Stock ExchangeThe Amsterdam Stock Exchange is the former name for the stock exchange based in Amsterdam. It merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext, and is now known as Euronext Amsterdam.-History:...
and the Brussels Stock ExchangeBrussels Stock ExchangeThe Brussels Stock Exchange was founded in Brussels, Belgium, by Napoleonic decree in 1801. On September 22, 2000, the BSE merged with Paris Bourse, Lisbon Stock Exchange and the stock exchanges of Amsterdam, to form Euronext N.V., the first pan-European exchange for equities and derivatives,... - 2001 - Clearnet merges with Euronext Amsterdam's and Euronext Brussels' Clearing Houses.
- 2001 - Clearnet guarantees payment and financial security for Powernext, the French electricity market.
- 2002 - Clearnet launches clearing operations for transactions in Italian government bonds traded on the MTS Italy electronic platform.
- 2002 - Clearnet extends its guarantee to Same Day RepoRepurchase agreementA repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
active on French debt. - 2003 - Euronext LisbonEuronext LisbonEuronext Lisbon is a stock exchange in Lisbon, Portugal. It belongs to the NYSE Euronext group, the first global stock exchange.Euronext Lisbon trades equities, public and private bonds, participation bonds, warrants, corporate warrants, investment trust units, and exchange traded funds...
contributes its derivative and OTC equity clearing businesses to Clearnet which thus acquires a branch in Portugal to establish a local presence with Portuguese clearing members.
Post merger
- 2003 - LCH.Clearnet Group is formed following the merger of the London Clearing House and Clearnet SA
- 2004 - LCH.Clearnet begins to clear contracts for the EDX LondonEDX LondonEDX London Ltd is a derivatives exchange managed by the London Stock Exchange. The market was set up in 2003 to combine the liquidity and expertise of the LSE with advanced derivatives technology offered by OMX AB. Members of EDX can trade either standardised or flexible futures and options on...
market. - 2004 (May) - LCH.Clearnet begins to clear London Stock Exchange's Dutch Trading Service.
- 2004 (JUne) - LCH.Clearnet acts as central counterparty and guarantor of full completion to the Powernext Futures market
- 2005 - Introduction of OTC Freight Clearing service
- 2006 - LCH.Clearnet offers its services as central counterparty to AlternextAlternextNYSE Alternext is an equity trading market that was opened May 17, 2005 by its parent institution Euronext to address an opportunity posed by small to medium sized firms that were anticipated to desire easier access to an equity market....
in Paris and Brussels, Broker Tec (Italian debt) and MTS Italy (French debt). - 2007 (March) - LCH.Clearnet and Euronext announce repurchase by LCH.Clearnet of shares held by Euronext to more closely align customer and shareholder interests
- 2008 - LCH.Clearnet begins OTC emissionsEmissions tradingEmissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
clearing - 2008 - LCH.Clearnet begins to clear contracts on the Luxembourg Stock ExchangeLuxembourg Stock ExchangeThe Luxembourg Stock Exchange is a stock exchange based in Luxembourg City, in southern Luxembourg.The Exchange is located on avenue de la Porte-Neuve,...
Products
LCH.Clearnet provides clearingClearing (finance)
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....
or central counterparty services in the following markets:
Commodities
LCH.Clearnet has been clearing commodities since the London Clearing House was established in 1888. LCH.Clearnet provides clearing and settlement services for both the exchange traded and the OTC commodity markets.LCH.Clearnet clears commodities such as non-ferrous metals, plastics and steel that are exchange traded on the London Metal Exchange
London Metal Exchange
The London Metal Exchange is the futures exchange with the world's largest market in options, and futures contracts on base and other metals. As the LME offers contracts with daily expiry dates of up to three months from trade date, along with longer-dated contracts up to 123 months, it also...
, and NYSE Liffe as well as a broad range of futures and options contracts covering soft and agricultural products. It also clears over-the-counter products include OTC gold, coal, steel and iron ore and fertilizer swaps.
Credit Default Swaps
By January 2010, CDS contracts representing over €25,000 billion in assets..LCH.Clearnet SA’s Eurozone CDS service was launched in response to regulatory and market demand, initially covering European indices, with the intention of expanding the offering. The CDS service provides full STP multilateral clearing, reduced counterparty risk and post-trade anonymity and encompasses the core requirements as determined by key industry and policy groups, including ISDA, CESR, the ECB and the European Commission.
Derivatives
LCH.Clearnet is the largest and only user-owned and user-governed global supplier of clearing services to the derivatives markets, either directly to the user community or by operating the clearing process on behalf of a third party via an insourcing arrangement, providing services to clients for Short Term Interest Rates (STIRs) Indexes and Equity derivativeEquity derivative
In finance, an equity derivative is a class of derivatives whose value is at least partly derived from one or more underlying equity securities. Options and futures are by far the most common equity derivatives, however there are many other types of equity derivatives that are actively...
s.
NYSE Liffe Clear
In October 2009 a clearing arrangement between NYSE Liffe and LCH.Clearnet Ltd was introduced, with NYSE Liffe becoming the central counterparty for London-based NYSE Liffe contracts. LCH.Clearnet Ltd continues to provide NYSE Liffe with its risk management services and the existing clearing guarantee; and continues to run its normal day to day operational clearing processes for NYSE Liffe. In the event of a default, LCH.Clearnet will become the counterparty and will be fully responsible for the management of the default.Energy
LCH.Clearnet Ltd provides clearing services to clients for OTC Emissions tradingEmissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
and the US electricity trading on the Nodal Exchange.
LCH.Clearnet SA provides services for Bluenext Futures EUA, future contracts on European Union Allowances and Bluenext Futures CER, futures contracts on Certified Emission Reductions.
Equities
EquityClear, LCH.Clearnet Limited’s equity clearing service, offers clearing for equities and equity equivalents such as exchange traded funds (ETFs), exchange traded commodities (ETCs), real estate investment trusts (REITS) and exchange traded bonds. The service clears equity-based trades that are executed on the London Stock ExchangeLondon Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
(LSE), SIX Swiss Exchange, BATS Europe, Equiduct & PLUS Markets Group
PLUS Markets Group
PLUS Markets Group and PLUS Derivatives . PLUS is a London based stock and derivatives exchange providing cash trading, listing, derivatives and technology services. PLUS delivers product innovation and competitive pricing to market participants by operating dynamic, low cost base exchanges...
(PMG), Chi-X Europe and Chi-East.
LCH.Clearnet SA clears transactions executed on NYSE Euronext, Bourse de Luxembourg, Equiduct and SecFinex.
Fixed Income
LCH.Clearnet has been working with fixed income markets since 1998.LCH.Clearnet SA provides clearing services covering French, Italian and Spanish Government debts, on cash and repo
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
transactions traded by financial institutions including Euro-MTS, MTS-France, MTS Italy, ICAP
ICAP
ICAP may stand for:* Institute of Chartered Accountants of Pakistan* International Center for AIDS Care and Treatment Programs - ICAP* International Computational Accelerator Physics Conference* Internet Content Adaptation Protocol...
(BrokerTec) and Tullett Prebon
Tullett Prebon
Tullett Prebon plc is one of the largest inter-dealer money brokers in the world. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.- History :...
, and trade providers such as the Euroclear Trade Capture and Matching System (EUROCLEAR's matching system), and Viel/Tradition.
LCH.Clearnet Limited’s RepoClear service was established in partnership with leading banks in 1999, as the first multi market centralised clearing and netting facility for some 13 European government repo
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
and cash bond markets, and a range of pan-European €GC Baskets. As of 2010 monthly volumes averaged c. €11 trillion, and RepoClear cleared cash bond and repo trades in the following markets: Austrian, Belgian, Dutch, German, Irish, Finnish, Portuguese, Slovakian, Slovenian, Spanish and UK government bonds
Bonds
Bonds can refer to any of several things:*Certificates that represent money a government or corporation has borrowed from other entities: see Bond *Bonds an Australian clothing company-People:* Alfred Bryan Bonds* Barry Bonds Bonds can refer to any of several things:*Certificates that represent...
. Additional markets served include: German Jumbo Pfandbriefe and Supranationals, Agency and Sovereign.
Freight
LCH.Clearnet’s Freight service was launched in September 2005 with the support of the freight broking community. It provides an independent clearing service for the registration of OTC Forward Freight Agreements (FFAs) for the most actively traded routes; thirteen dry and ten wet routes, as well as options on the four dry timecharter routes: Capesize, Panamax, Supramax and Handysize.Container Freight
In June 2010 LCH.Clearnet launched a clearing service for the containerised freight market. The service provides an independent clearing service for the registration of OTC Container Freight Swap Agreements (CFSAs) for four of the most actively traded routes out of Shanghai.
Interest Rate Swaps
SwapClear is a global clearing service for over-the-counter (OTC) interest rate swaps, currently clearing 50% of the global notional market and representing trades with a total notional principal of $248 trillion.Launched in 1999, SwapClear initially cleared plain vanilla interest rate swaps in four major currencies. Today, it clears swaps in 14 currencies; USD, EUR, and GBP out to 50 years, AUD, CAD, CHF, SEK and vanilla JPY out to 30 years and the remaining 6 currencies out to 10 years. It also clears OIS out to 2 years in USD, EUR, GBP and CHF.
In December 2009 SwapClear launched a new Client Clearing Service, a first for the buy-side community to access clearing interest rate swaps. The service offers unique levels of security to clients and has added functionality to support the segregation of client portfolios and margin.
In September 2008, LCH.Clearnet's Christian Lee, then Head of Risk for Rates and Equities, successfully managed Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
’ US$9 trillion interest rate swap default, comprising over 66,000 trades, by implementing SwapClear’s default management process. The default was fully resolved well within the margin held and at no loss to other market participants.
Centrally cleared CFDs
LCH.Clearnet was the first in Europe to launch a clearing service for Contract for Differences (CFDs) and the first clearer globally to offer CFD clearing for institutional investors. CFDs were first launched in the UK in the early 90s as a short access product. Since then their use has grown across the world.LCH.Clearnet’s centrally cleared CFD (ccCFD) service, in conjunction with Chi-X Europe, are an alternative to the traditionally over-the-counter traded CFDs and is line with the European Commissions’ aim to increase the proportion of cleared OTC contracts.
Regulation
LCH.Clearnet is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates.See also
- Clearing house (finance)Clearing house (finance)A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions...
- Central Securities DepositoryCentral Securities DepositoryA Central Securities Depository is an organization holding securities either in certificated or uncertificated form, to enable book entry transfer of securities. In some cases these organizations also carry out centralized comparison, and transaction processing such as clearing and settlement of...
- Stock ExchangeStock exchangeA stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
- Derivatives exchange