UPDATE 1-Italian clearing house to limit guarantees on LCH.Clearnet
MILAN, Sept 13 (Reuters) - Italian clearing house Cassa di Compensazione e Garanzia is set to introduce new rules that will curb guarantees on cross-border transactions in case of a default by LCH.Clearnet, a move similar to one taken by its ally last month.
LCH.Clearnet introduced in August a so-called 'cash settlement' in case of default by the Italian clearing house, a decision that shifts the bulk of risk to investors entering transactions with a clearing house.
"We are preparing similar measures. If LCH.Clearnet were to default, there is an agreement on what the Italian counterparty would do," Economy Minister Fabrizion Saccomanni told Italian television, confirming an earlier report by Reuters.
The decision follows a request by European regulators to introduce procedures to address in an orderly fashion the possible bankruptcies of clearing houses that are closely interconnected. Saccomanni said it was the result of months of negotiations.
Cassa di Compensazione e Garanzia is expected to get a green light from Italian authorities by the end of September, sources with direct knowledge of the situation told Reuters.
Unlike LCH.Clearnet, the Italian clearing house plans to set up a fund that should guarantee transaction losses of up to 1 million euros. LCH.Clearnet, on the other hand, has introduced a requirement for an enhanced guarantee for clients who are exposed to Italian government bonds beyond a certain level.
LCH.Clearnet and the Italian clearing house have worked under an interoperability agreement for the last 10 years and are both controlled by the London Stock Exchange.