Three weeks after regulators forced LCH.Clearnet to delay the launch of clearing services to Chi-X Europe, the clearing house has teamed up with a new venture from Chi-X Global and the Singapore Exchange (SGX).
LCH.Clearnet will act as the central clearing facility for Chi-East, the first exchange-backed non-displayed trading platform in Asia. Chi-X Global and SGX announced the launch of the venture in August 2009. It is set to launch in mid-2010.
In Europe, regulators are worried that interoperability, a service that allows customers greater choice of central counterparty clearer (CCP) by linking CCPs together, may increase counterparty risk if one CCP defaults. As a result, LCH.Clearnet put out a statement on 26 October to its members saying: LCH.Clearnet Limited regrets to inform you that until regulatory non-objection has been obtained, it will not be possible to offer clearing services on an interoperable basis to any further trading venues.
A LCH.Clearnet spokesperson said that regulators may take around three months to come back to the clearing house with an answer.
According to the Financial Times: One industry expert involved in one of the clearers concerned said: In reality it is possible to create a domino effect if one clearing house goes bankrupt.
However, in a guide to interoperability published by LCH.Clearnet, it stated that the clearing house currently collateralised margin requirements with Bank Guarantees thus eliminating any exposure in the event of an interoperable CCP default. In future we may use bonds as collateral which will be held in a segregated account in the name of LCH by the receiving party.
LCH.Clearnet has had a number of interoperable agreements for some time, including SIX Swiss Exchange SMI securities (May 2003), London Stock Exchange Main Market (December 2008), SIX Swiss Exchange Small & Mid Caps (September 2009) and EDX London (November 2003).
The new service in Singapore avoids any interoperability complications. LCH.Clearnets EquityClear service will clear the Australia, Hong Kong and Japan-listed securities available for trading on Chi-East. SGX-listed stocks will be cleared and settled through The Central Depository, SGXs securities clearing house and depository, via SGXs securities clearing members.
Chi-East will act as an independent liquidity aggregator for the sell side and offer another execution option in the form of a non-displayed venue that will expand the range of available solutions for conducting block transactions. Chi-Tech, the technology subsidiary of Chi-X Global, will provide the technology for the new trading platform.
Giles TurnerNews Editor