LCH.Clearnet expands credit default swap clearing service

LONDON Mon Dec 16, 2013 8:24am EST

LONDON Dec 16 (Reuters) - LCH.Clearnet, the clearing house majority owned by the London Stock Exchange, has expanded its credit default swap (CDS) clearing service, as it seeks to improve efficiency for clients and capitalise on derivatives trading reforms.

LCH.Clearnet said on Monday that a further 187 single-name CDS are now eligible for clearing through its CDSClear service, giving it the largest European CDS portfolio of any clearing house globally.

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.

U.S. exchange operator IntercontinentalExchange has strengthened its derivatives clearing offering through its $10 billion-plus takeover of NYSE Euronext and its derivatives arm NYSE Liffe. Liffe transferred its derivatives clearing to Ice Clear Europe in July.

Elsewhere Deutsche Boerse's Eurex late last year added interest rate swaps to its derivatives clearing service, while U.S. 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.