How It Works

Transaction Processing

Trading

The Lending and Borrowing Clearing System is a real-time monitoring of Transactions process.

Each Clearing Day, upon reception and/or acceptance of Transactions, LCH.Clearnet SA registers Lending and Borrowing Transactions within the clearing hours, from 8:30 am to 5:30 pm CET.

All Transactions that are submitted to LCH.Clearnet SA are registered in the name of the Clearing Member.

Upon registration novation occurs. As a result of novation, LCH.Clearnet SA becomes counterparty to the Clearing Member.

Margin call and deposit payment

LCH.Clearnet SA covers the latent market risk due to Members’ positions in the event that they should default by:

• Taking Initial Margin to cover an estimate of the potential future losses incurred in managing the default of the Member under normal market conditions. A calculation is performed on all netted open Return positions at Clearing Member compartment level (client/house) using the current SPAN® Liquidation risk algorithm, with the margin parameters used for cash equity markets.

• Calculating a Variation Margin (Mark-to-market) for the Member’s open Return Leg only if the Initial Leg is settled. This is calculated by marking-to-market open Returns positions every day and passing on any change to the Clearing Member.

• Debiting a Negotiation Risk Margin from the Clearing Member to cover the market price fluctuation occurrence since the intended settlement date on failed Return legs.

• Collecting accrued Loan Fees & Cash Interest Coverage on a daily basis to cover default on a monthly payment.

• Maintaining a Clearing Fund to cover potential losses beyond those covered by the margins described above that may be incurred in abnormal market conditions.

All calculations are made during the nightly batch (except for intra-day margin calls, if required). The resulting margin calls must be settled the following morning (except clearing fund contributions which are collected monthly) as for all other markets cleared by LCH.Clearnet SA. In order to cover these calls (except for Variation Margins which are not a coverage), LCH.Clearnet SA offers to its members the possibility to deposit cash (Euro, USD, ...) or securities as collateral.

Settlement

Initial and return legs are settled using the Delivery-versus-Payment rule on a gross basis.

LCH.Clearnet SA sends the matched settlement instructions on behalf of the clearing member using a Power of Attorney to Euroclear Bank.

Web Reporting

Reporting and information are made available to members via a web interface, WEB SBL.

The web reporting provides to the clearing members access to their LCH.Clearnet SA Reports:operations reports including real time trades reports, settlement reports, risk management reports, fees reports and cash calls documents. Thus, the clearing members have the ability to control the correct registration of their trades into LCH.Clearnet SA and to make their reconciliations.

Membership

Members of LCH.Clearnet are eligible to clear products subject to approval. More information on becoming a member can be found here.

For more information on Service description please click here on connectivity click here.