How It Works

Cash equities (and equivalents)

Click on the diagram for a larger version.

The LCH.Clearnet EquityClear® service provides central counterparty (CCP) clearing services to its members for exchange traded equities and equity equivalents for settlement in Central Securities Depositories (CSD) and/or Securities Settlement Systems (SSS).

The left-hand side of the diagram above shows the standard 3-tiered structure of trading, CCP clearing and settlement. Each infrastructure provider interfaces to its own customers.

The right hand side of the diagram shows a high-level breakdown of the CCP clearing service into five functional components:

Trade management

Trades are received and validated to ensure they correctly identify LCH.Clearnet as the legal central counterparty. For off order book trades a risk limit check is performed by LCH.Clearnet before trade novation.     

Position management

The open principal positions between LCH.Clearnet and its members are maintained in real time as trades are registered and positions settled and overnight as corporate events are applied.

Settlement management

Positions are settled on a gross or trade date net basis as preferred by our member, or their settlement agent. Settlements are instructed by LCH.Clearnet on behalf of itself and its counterparty settlement participant; in CREST the counterparty settlement participant can choose to opt to instruct on their own behalf.

Risk management

Risk Margin is calculated using ERA. The prime initial margin methodology is a portfolio approach using historical prices.

Member defaults are managed by the LCH.Clearnet Risk Management department through a well-established and proven process.

Financial management

Members’ cash and collateral held by LCH.Clearnet are managed. Where member cash and collateral held is insufficient to cover the margin requirement, cash calls are made using PPS.

Clearing fees are charged and collected through this process.

LCH.Clearnet performs all five functions itself for all pan-European equities except for UK and Irish equities which are settled in CREST.

The initial phase of EquityClear® was the clearing of UK and Irish equity trades on the London Stock Exchange. In this phase the trade, position and settlement management functions were carried out by CREST; this continues today. SWX Europe trades are processed similarly; except that LCH.Clearnet necessarily performs the initial trade management before forwarding two trades, with LCH.Clearnet as counterparty to each, onto the CREST ‘direct input service’.

Full details of the service are available in the EquityClear® Service Description and the associated Report Formats document.