A further 187 single-name CDS are now eligible for clearing through LCH.Clearnet's CDSClear service, giving it the largest European CDS portfolio of any clearing house globally. LCH.Clearnet thus seeks to improve efficiency for clients and capitalise on derivatives trading reforms.
The expansion should create "significant capital efficiencies" for its members and clients, through better portfolio margining - a process by which investors can offset certain positions in CDS when calculating how much collateral they need to put up - it said. A CDS allows investors to insure against the risk of default on a debt. A single-name CDS references only one entity, often a widely traded company, bank or government, and is the most common and simplest form of CDS.
LCH.Clearnet's move will further intensify competition among clearing houses, which are looking to profit from new regulations which aim to push all over-the-counter derivatives trading through central clearing and on to electronic platforms.
US exchange operator IntercontinentalExchange has strengthened its derivatives clearing offering through its $10 billion-plus takeover of NYSE Euronext and its derivatives arm NYSE Liffe. Elsewhere, Deutsche Boerse's Eurex late last year added interest rate swaps to its derivatives clearing service, while US rival CME Group's European clearing house launched an interest rate swap service in March and has plans to expand to foreign exchange and CDS.
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On December 17, the CFTC issued an Order granting Banque Centrale de Compensation, doing business as LCH.Clearnet SA (LCH.C SA), registration as a derivatives clearing organisation pursuant to Section 5b of the Commodity Exchange Act.
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