RepoClear, the central counter-party service for the European repo markets owned by London Clearng House (LCH), announced today that it has added gilt cash and repo markets to its service.
These additions take RepoClear’s coverage of European government bond markets to eight: Germany, Belgium, Holland, Austria, Ireland, Finland, Portugal and now the UK.
Since the UK gilt market is the third largest government bond market in Europe, and sterling is the only major non-euro denomination, Repoclear expects the new service to add dramatically to trading volumes. At present, RepoClear clears business in excess of EUR2 trillion per month. The London-based CCP says this equates to a 90 per cent share of the cleared fixed income market in Europe.
“Member demand for Gilt clearing is incredibly high because the benefits of LCH RepoClear, such as anonymous trading, balance sheet netting, reduced counterparty risk exposure and the automation of operational processes, are well understood and clearly demonstrated from the other LCH RepoClear markets,” says John Burke, Director, LCH RepoClear. “In particular, there is wide expectation among Gilt market participants that the introduction of anonymous trading will lead to a dramatic improvement in the way Gilts are traded between banks in the UK and, consequently, a step-change in the operational efficiency of the Gilt market is expected. LCH RepoClear is delighted to be able to offer this service to the market and to have introduced, in conjunction with Gilt market participants, this major development that will certainly accelerate the evolution of the Gilt market overall”.
Access to the market will continue to be via electronic trading platforms and voice brokers, allowing members of RepoClear to choose where to execute trades. Furthermore, a General Collateral (GC) basket for Gilts will be added in September to complement the LCH RepoClear Forward Start GC product launched in April.
Mark Dearlove of Barclays Capital, and Chairman of the market users Gilt Design Committee which laid out the blueprint for the cleared service added: “We welcome this new initiative as it will allow us to utilise our balance sheet more effectively, reduce our settlement costs, reduce our risk and enable Barclays Capital to trade on an anonymous basis.”
Simon Tims, Executive Director of UBS Warburg’s repo desk, said: “As a result of LCH clearing for European government bonds we have experienced fewer settlement problems and reduced our balance sheet and credit line exposures allowing the European repo market to grow substantially. We look forward to LCH central clearing giving the Gilt market a similar boost.”
LCH RepoClear expects to launch the long-awaited launch of a clearing service for Italian government bonds. With a scheduled launch during Q4 2002, this will form a key strategic pillar in the development of the LCH RepoClear’s service in Europe – and especially in terms of competition with EuroMTS.