How It Works

RepoClear LTD            RepoClear SA            €GCPlus

The repo market currently operates through both voice broker transactions and screen trading and both types of trade sources are accepted by LCH Ltd.

Direct or broker trades are fed into an independent matching system, called ETCMS. Once the trade has been matched and validated to check it is within the RepoClear parameters, it is registered and LCH Ltd assumes the counterparty risk.

ATS trades submitted to RepoClear are registered post receipt and validation by LCH Ltd.

On receipt and confirmation of eligible transactions, trades are governed under the rules of LCH Rulebook.

Settlement Netting

At the prescribed time in each market, RepoClear nets and shapes all delivery obligations due for settlement the next business day. In some markets, the settlement netting may result in several delivery obligations for LCH due to cross-border settlement or maximum delivery size requirements.  Members are then notified of their own specific delivery obligations.

Payment Netting

If there are no securities delivery obligations all net cash delivery obligations are aggregated into one amount per market, which is paid through the appropriate depository.  Margin obligations from all exchange-traded and bilaterally-traded contracts, together with any coupon payments, are netted into a single payment per currency per day and paid through the Protected Payments System (PPS).

Fixed Income User Groups

There is user involvement during all stages of development. LCH Ltd works very closely with market participants  through well established User Groups to ensure that our offering is tailored to their ever changing requirements.

The Fixed Income Product Advisory Group (PAG) is made up of key market participants.  It provides strategic direction to the development of LCH's service and is chaired by an LCH Group Board Member ensuring that members' views are considered at the highest level.

The PAG is supported by the Fixed Income Operational Working Party (FIOWP) which deals with matters pertaining to operational implementation, processes and projects. More recently, RepoClear has added a Risk Working Group (RWG) to support Risk Related developments.

Transaction Processing

Trading

Transactions are negotiated between the LCH SA members through recognised trading platforms or trade confirmation systems.

Trades are sent to LCH SA for clearing.

Trade providers send the transaction details to LCH SA on a live-flow basis.

Transactions are deemed to be registered as soon as the terms of trades (product, counterparties) have been checked by LCH SA. At this moment, novation occurs and the trade is guaranteed by LCH SA.

Confirmation of Novation

A confirmation of novation is sent to the clearing members on a live-flow basis via a dedicated LCH SA web-site. In case of rejection, a specific message is provided.  

Same Day REPO (SDR)

As soon as a SRD is registered, LCH SA sends an instruction concerning the start leg (value current day) in order to settle it in the relevant CSD on a gross basis.

Margin call and deposit payment

  • Trades received before the cut-off on D enter into the margins calculation to be called on D+1 in the morning. 

  • Trades received after the cut-off on D enter into the margins calculation of D+1 to be called in the morning on D+2.

To guarantee the net positions of members and be able to manage its default risk, LCH SA requires its members to deposit initial margin, additional margin to cover specific risks and through marking-to-market daily variation margin. This overall margin is updated twice a day for cash and repo trades. It can be deposited in the form of cash (EUR) or securities (OATs, French Treasuries -Bons du Trésor-  BUNDs, BTP etc...).

Settlement on a net basis

At the end of the day (on D), LCH SA calculates the net balances of securities and cash for each LCH SA member, for settlement on D+1. LCH SA then gives the necessary net instructions for delivery versus payment (DVP) in the specified CSD. The net balance takes into account all the trades of a member regardless of the trading system used.

Web Reporting

The web reporting provides to the clearing members a real-time access to their LCH SA Reports. Thus, the clearing members have the ability to control the correct registration of their trades into LCH SA on a real-time and remote basis via the web.

In addition, a complete report of activity (position, margining, delivery, fails) is available for each member at 8:00 AM (deadline).

Market Data

The RepoClear SA uses the prices sources below to value the collateral of repo / reverse repo:
  • Interactive Data for the French and German markets
  • MTS Spain for the Spanish debt
  • MTS Italy for the Italian debt

On top of the prices indicated above some other market data like Accrued Coupon are either collected from Interactive Data (France, Germany and Italy) or calculated internally for Spain.
 

Transaction Processing

Trading

Transactions are negotiated between the LCH SA members through recognised trading platforms or trade confirmation systems.

Trades are sent to LCH SA for clearing.

Trade providers send the transaction details to LCH SA on a live-flow basis.

Transactions are deemed to be registered as soon as the terms of trades (product, counterparties) have been checked by LCH SA. At this moment, novation occurs and the trade is guaranteed by LCH SA.

Confirmation of Novation

A confirmation of novation is sent to the clearing members on a live-flow basis via a dedicated LCH SA web-site. In case of rejection, a specific message is provided.

Risk management and Margin call

  • Trades received before the cut-off on D enter into the margins calculation to be called on D+1 in the morning.
  • Trades received after the cut-off on D enter into the margins calculation of D+1 to be called in the morning on D+2.

To guarantee the net positions of members and be able to manage its default risk, LCH SA applies to its members a dedicated risk framework which enhances the existing fixed income risk framework to tackle specificities of the clearing of triparty repos transactions.

LCH SA has established a dedicated default fund for the €GCPlus clearing service.

The overall margin is computed twice a day by LCH SA and accordingly called to clearing members (09:00 CET for Morning Call and 16:00 CET for Intra Day) through Target2 accounts with € cash which can be further on substituted with securities.

Allocations and Settlement on a net basis

Intraday (cut off at 12:00 CET on trading platforms for Same Day) and at the end of the day (cut off at 17:00 CET on trading platforms for settlement value the day after), LCH SA calculates the net balances (Net Position Exposures) per clearing member and basket. LCH SA then gives the necessary collateral management instructions to the Euroclear CMS which further on applies the required delivery versus payment (DVP) in the specified CSD. The net balance takes into account all the trades of a member regardless of the trading system used.

Reuse and Pledge

€GCPlus offers full reuse to clearing members within the Euroclear CMS environment and the access to refinancing at the Banque de France beside triparty reuse, refinancing to Banque de France.

Web Reporting

The web reporting provides to the clearing members a real-time access to their LCH  SA Reports. Thus, the clearing members have the ability to control the correct registration of their trades into LCH SA on a real-time and remote basis via the web.

Clearing Members have also available the Euroclear CMS restitutions in relation with allocations and settlements.

Market Data

The €GCplus service is using information from two set of market data.

The valuation of the collateral allocated to net position on the baskets is done by Euroclear and hence uses Euroclear reference prices.

LCH  SA also use prices provided by  Interactive Data which merge prices from several market place/contributors. These prices are used to build historical series which determines the asset classes margin parameters.