SECURITIES FINANCE

LCH launches buy-side repo clearing model

CCPs are keen to bring asset managers and pension funds into the clearing process, as banks continue to withdraw from the space.

By Joe Parsons joe.parsons@strategic-i.com September 14, 2017 11:01 AM GMT

LCH has expanded its RepoClear service to allow buy-side participants to clear their trades directly, with Insight Investment signing up as the first asset manager member.

Insight was to the first to clear a repo trade, acting for a UK pension fund it manages, with NatWest Markets supporting its trade as the agent member.

The direct clearing model is initially available for the 11 government debt markets cleared by LCH, as the group plans to extend the service to its French-based clearing house, LCH SA.

“This initiative with LCH is ground-breaking for the asset management community. It deepens and diversifies repo liquidity and will benefit our pension fund clients by providing efficiencies for them in comparison to non-cleared repo,” said Mark Stancombe, head of corporate and product strategy, Insight Investment.

Central counterparty clearing houses (CCPs) are keen to bring asset managers and pension funds into the clearing process, as banks continue to withdraw from the space due to increased capital pressures on the business.

“Broadening the number of clearing members in this way maintains the robustness of CCP risk management, creates the opportunity for greater balance sheet netting, benefits leverage ratio, and increases overall repo market capacity,” added Brian Shanahan, head of clearing and margin strategy, NatWest Markets.

Eurex most recently signed Dutch pension fund PGGM as its first buy-side member for its securities lending clearing house, and Canada’s main derivatives CCP has launched a buy-side clearing membership for cash and fixed income repo trades.

Last month, LCH went live with a new account structure to allow buy-side clients to post collateral directly with the clearing house. It also secured Aviva Investors as the first client of new CustodialSeg account structure.