LONDON, March 28 (IFR) - LCH has extended its repo clearing
service to include German government debt, offering clients
enhanced netting opportunities against existing cleared repo
activities on the RepoClear platform.
The latest development adds to the French, Italian and
Spanish cash and securities repo clearing service already
offered by LCH SA - the Paris-based arm of the clearing firm. It
covers government debt instruments that are settled through
Target2 Securities (T2S) – the pan-European securities
settlement platform. In addition to government securities, the
initiative extends to German regional debt as well as jumbo
The fourth T2S migration wave was completed last month,
enhancing netting capabilities in the cleared repo market after
a further six central securities depositories were brought on
board, including Germany’s Clearstream.
Following the latest migration wave – the largest to date -
18 CSDs representing 16 markets are now settling securities
transactions on the T2S platform.
“The implementation of T2S brings with it an opportunity to
expand the number of European trades eligible for balance sheet
netting, providing greater operational and capital efficiency
for our members,” said Christophe Hemon, CEO of LCH SA. “It will
also allow our members to benefit from potential margin savings
thanks to risk offsets among four main European debts.”
RepoClear members can use Clearstream Bank or Euroclear
France as their CSD, or Euroclear bank as the settlement agent.
The addition of Frankfurt-based Clearstream into T2S is expected
to dramatically improve netting opportunities in German
sovereign bonds. Netting has become vital for banks to reduce
balance sheet usage and mitigate costly capital requirements
associated with Basel III rules that many believe have sapped
liquidity from sovereign bond markets.
“There is clear evidence that the roll out of T2S will bring
tangible benefits towards improving the infrastructure services
required to support liquidity in the European sovereign bond
markets,” said Michael Manna, head of EMEA and APAC fixed income
financing at Barclays. “Clearing is both an efficient way for us
to guard against counterparty risk and optimise balance sheet
In addition to the netting opportunities available against
other eurozone government repo trades on the Paris-based
platform, German cash and repo trades will also be cleared on
the London-based RepoClear platform that includes government
securities in the UK, Austria and Scandinavia.
“This initiative offers the choice between clearing venues
and the ability to improve operational efficiency,” said Peter
Fejfer Nielsen, head of EMEA finance desk at Citigroup. “It is
an important step to incorporate T2S across European government
debt markets and will improve settlement and support our client
LCH SA is subject to a possible acquisition by Euronext. The
pan-European exchange has agreed to take control of LCH SA for
£510m in the event of a successful takeover of the London Stock
Exchange Group, LCH’s parent, by Deutsche Boerse.
That US$14bn deal appears to be on the brink of failure,
however, with the CDS clearinghouse set to remain in LCH’s grip
after LSEG refused to bow to regulatory pressure to offload its
Italian bond trading platform, MTS. A formal decision is due on
(Reporting by Helen Bartholomew)