Risky business for LCH.Clearnet-cleared bonds and repos
14 January 2013 London
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LCH.Clearnet has implemented formal loss allocation arrangements as a means of mitigating systemic risk for bonds and repos that are cleared through its RepoClear service.
The loss allocation arrangements were designed in collaboration with fixed income market participants.
In the event of a RepoClear member default, where exceptional losses are incurred in excess of the financial resources available, loss allocation ensures the ongoing operation of other LCH.Clearnet clearing services by introducing a further level of protection to the default waterfall.
John Burke, head of LCH.Clearnet鈥檚 fixed income business, said: 鈥淭he changes we have made to the RepoClear default waterfall highlight our commitment to providing world-class risk management solutions to the markets that we clear."
鈥淥ur clearing members overwhelmingly supported this development, with 98 percent of voting clearing members in favour of the scheme. This confirms the importance of our RepoClear service鈥檚 resilience and highlights LCH.Clearnet's position as the industry-leader for risk and default management methodologies.鈥�
The loss allocation arrangements follow changes introduced in August 2012 to separate the RepoClear default fund in London from LCH.Clearnet鈥檚 cross-asset class mutualised default fund.
The loss allocation arrangements were designed in collaboration with fixed income market participants.
In the event of a RepoClear member default, where exceptional losses are incurred in excess of the financial resources available, loss allocation ensures the ongoing operation of other LCH.Clearnet clearing services by introducing a further level of protection to the default waterfall.
John Burke, head of LCH.Clearnet鈥檚 fixed income business, said: 鈥淭he changes we have made to the RepoClear default waterfall highlight our commitment to providing world-class risk management solutions to the markets that we clear."
鈥淥ur clearing members overwhelmingly supported this development, with 98 percent of voting clearing members in favour of the scheme. This confirms the importance of our RepoClear service鈥檚 resilience and highlights LCH.Clearnet's position as the industry-leader for risk and default management methodologies.鈥�
The loss allocation arrangements follow changes introduced in August 2012 to separate the RepoClear default fund in London from LCH.Clearnet鈥檚 cross-asset class mutualised default fund.
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