How It Works

RepoClear does not affect the current methods of trading in the European cash and repo market. Eligible trades are acceptable for clearing by LCH.Clearnet Limited whether they are directly negotiated, arranged via 'voice' brokers or through an Automated Trading System (ATS).

Direct or broker trades are fed into an independent matching system for matching of trade details (i.e. notional amount, repo rate, price of bond, term of repo). After the trade is successfully matched, the matched trade is sent to RepoClear for registration. The trade is then validated by LCH.Clearnet Limited to check that the trade is within the RepoClear parameters. Once validated, the trade is registered and the original trade is replaced by two contracts of the same economic terms as the original trade, with standard LCH.Clearnet Limited terms between LCH.Clearnet Limited and each member. After registration, the members no longer have exposure to their original counterparty.

ATS trades are registered with LCH.Clearnet Limited when they are 'agreed on the screen'. The ATS trade details are sent automatically to LCH.Clearnet Limited via a S.W.I.F.T message by the ATS. Due to this feature, trading anonymity is enabled.

Settlement Netting

At a prescribed time per individual market, LCH.Clearnet Limited nets all delivery obligations (i.e. start leg, end leg and substitutions) due for settlement the next business day. The ideal result is for one net delivery obligation to be calculated. (In certain markets, the settlement netting may result in several delivery obligations due to cross-border settlement or maximum delivery size requirements). There are two methods for the delivery of information to the appropriate depositories. LCH.Clearnet Limited can inform members of their delivery obligations with the members then sending instructions to the depositories, or, if the member has signed a Power of Attorney agreement, LCH.Clearnet Limited can send the member's delivery instructions directly to the depository.

Payment Netting

If, after the settlement netting cycle, there are no securities delivery obligations (longs equal shorts), LCH.Clearnet Limited aggregates all net cash delivery obligations into one amount per market, which is paid through the appropriate depository.

Coupon payments are netted with other cash flows in each currency and reduced to one cash flow per currency per day. Margin and settlement amounts from a member's other LCH.Clearnet Limited activities are netted, resulting in a single payment or receipt, per currency per day.

In the course of daily operations, LCH.Clearnet Limited nets all margin obligations from all exchange-traded and bilaterally-traded contracts, together with any coupon payments, into a single payment per currency per day, paid through the Protected Payments System (PPS).