LCH.Clearnet (previously known as the London Clearing House and the Paris based 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, credit default swaps, energy and freight.

As with most clearing houses, 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. Initial and variation 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.

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.

History[link]

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[link]

• 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 Exchange (IPE)
• 1982 - LCH begins to clear contracts traded on LIFFE
• 1987 - LCH begins to clear contracts traded on the London Metal Exchange (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 Swaps and Repos
• 1999 - Introduction of clearing for power
• 2001 - LCH begins to clear the London Stock Exchange's automated order book trades
• 2002 - LCH begins to clear ICE energy contracts

Clearnet[link]

• 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 MATIF, 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 Paris. 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 - Euronext merges with the Amsterdam Stock Exchange and the Brussels Stock Exchange
• 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 Repo active on French debt.
• 2003 - Euronext Lisbon 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[link]

• 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 London 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 Alternext 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 emissions clearing
• 2008 - LCH.Clearnet begins to clear contracts on the Luxembourg Stock Exchange

Products[link]

LCH.Clearnet provides clearing or central counterparty services in the following markets:

Commodities[link]

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, 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[link]

By January 2010, CDS contracts representing over €25,000 billion in assets.^[1].

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[link]

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 derivatives.

NYSE Liffe Clear[link]

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[link]

LCH.Clearnet Ltd provides clearing services to clients for OTC Emissions trading and the US electricity trading on the Nodal Exchange.

LCH.Clearnet SA provides services for Bluenext Futures EUA, future contracts on EU Allowances and Bluenext Futures CER, futures contracts on Certified Emission Reductions.

Equities[link]

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 Exchange (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.

Fixed Income[link]

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 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.

Freight[link]

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[link]

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[link]

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^[2]. 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.

Centrally cleared CFDs[link]

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[link]

LCH.Clearnet is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates.

[edit] London Stock Exchange Group

On the 3 April, 2012, LSE and LCH.Clearnet shareholders voted overwhelmingly to take up to 60 percent of the clearing operator with an offer of 20 euros per share, which values LCH.Clearnet at 813 million euros ($1.1 billion). ^[3]

See also[link]

• Clearing house (finance)
• Central Securities Depository
• Stock Exchange
• Derivatives exchange

References[link]

External links[link]

• Official site
• LCH.Clearnet About Us
• Board of Directors 2010

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