Clearing the Way for Non-Cleared
Launching in H1 2017, LCH SwapAgent is a new service designed to simplify the processing, margining and settlement of non-cleared derivatives. LCH SwapAgent benefits from LCH’s expertise in serving and managing risk for the cleared Rates and FX derivatives market, providing market participants with a number of solutions designed to materially improve standardisation, efficiency and simplicity in the bilateral derivatives market.
LCH SwapAgent provides these solutions by extending the clearing infrastructure to the bilateral market without requiring novation to a central counterparty. So while trades managed by LCH SwapAgent remain fully bilateral, they follow a similar operational process as cleared trades, including centralised trade processing, valuation, margining, risk calculation and optimisation services.
That way we can extend many of the efficiencies that customers have become accustomed to in the cleared market to the non-cleared market.
WHAT WE DO
LCH SwapAgent improves standardisation, efficiency and simplicity in the bilateral derivatives market by:
- Standardisation of collateralisation document terms
- Uniform end-to-end trade processing and life cycle management
- Independent valuation and dispute elimination for LCH SwapAgent trades
- Standardised risk factor calculations for bilateral initial margin calculations
- Simplification and standardisation of the collateralisation and settlement process
- Elimination of unnecessary payment flows (e.g., such as netting coupons and variation margin)
Increased ability to move trades between counterparties and to the clearing house without funding impacts driven by collateralisation term
LCH Swapagent Advantages
|Bilateral LCH SwapAgent||Bilateral Today||
|Standardised Collateral Documentation||✓||x||✓|
|Standardised Trade Processing||✓||x||✓|
|Independent Valuation Agent||✓||x||✓|
|Standardised Risk Factor Calculation||✓||x||✓|
|Standardised Payment Processing||✓||x||✓|
|Cross-Currency and Swaptions*||✓||✓||x|
*Cross-currency and swaption product eligibility will be extended throughout planned LCH SwapAgent releases
Compression alone at LCH has already reduced notional outstanding for cleared derivatives by more than $200 trillion, saving an estimated $25 billion in capital for the industry. By introducing opportunities like this to the billateral market, we are improving its sustainability.
FAST TRACK TO GREATER EFFICIENCIES
The LCH SwapAgent service benefits from the infrastructure of SwapClear, which has already reduced notional outstanding for cleared interest rate swaps by more than 50% with its compression optimisation services. That’s over $200 trillion in notional reduction and an estimated $25 billion or more in capital savings for the industry.
Because we’ve already built and proven the benefits for cleared swaps, we believe we can extend many of these efficiencies to the non-cleared market.
LCH SwapAgent streamlines and standardises collateral documentation. We do this by introducing a service under which participants agree that standard collateralisation terms apply for trades submitted to the LCH SwapAgent service.
We will introduce a new rulebook to cover this, similar in many ways to the existing clearing rulebook. Once a member signs up, trades submitted through LCH SwapAgent are bound by its terms, which include standardised amendments to existing collateralisation documentation, which members can choose to apply to their bilateral LCH SwapAgent trades.
It’s really straightforward to take advantage of LCH SwapAgent. Contact us to find out more at Swapagentsales@lch.com.
Contents and services subject to appropriate regulatory approval