LCH.Clearnet hit by outage on New Year's Eve

LONDON, March 25 Mon Mar 25, 2013 4:43pm GMT

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LONDON, March 25 (Reuters) - Britain's main securities clearing house suffered an outage on New Year's Eve, the Bank of England said on Monday, highlighting a problem with part of the financial system seen as central to keeping markets stable.

LCH.Clearnet clears stock and derivatives trades, ensuring a transaction is completed even if one side of the deal goes bust. It also handles sterling and euro balances at the central bank.

The central bank regulates payment systems and on Monday published its annual report on the sector, saying LCH.Clearnet suffered a significant IT problem on Dec. 31.

Clearing and settlement houses are at the heart of regulatory reform to make markets function more reliably and transparently. The central bank will regulate clearers directly from April.

"The nature of the problem created obstacles to reverting to contingency arrangements and also hindered internal and external communication," the bank said.

Crest, which settles trades so that ownership of a security is exchanged for cash, also experienced a number of outages in early 2012, the BoE said.

"These incidents were satisfactorily resolved on the days concerned, but highlight the importance of robust operational risk controls across all recognised systems," the bank said.

LCH.Clearnet has taken important steps to improve its resilience, is investigating the causes of the incident and has developed plans to prevent a recurrence, the bank said.

LCH.Clearnet said the incident was "fully communicated" to regulators, exchanges, members and clients at the time.

"We identified the issue and took measures to ensure this doesn't happen again. There were no financial losses as a result," the clearer added.

The London Stock Exchange is buying a controlling stake in LCH.Clearnet to capitalise on the regulatory push to channel more transactions through clearing houses.

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