RBA: 2013/14 Assessment of LCH.Clearnet Limited's SwapClear Service List of tables
Chapters
Table 1: LCH.C Ltd Regulatory Priorities for 2013/14
Table 2: LCH.C Ltd Regulatory Priorities for 2014/15
Table 3: LCH.C Ltd Regulatory Priorities for 2013/14
| Standard | Recommendation | Comment |
|---|---|---|
| Regulatory Priorities Specifically Related to LCH.C Ltd's Provision of Services to the Australian Market | ||
| 6. Margin 16. Operational risk | The Bank expects LCH.C Ltd to extend operating hours and operational support to the Australian time zone. | Partly addressed. Expected to be fully addressed by end 2014. LCH.C Ltd implemented rule changes in May 2014 to allow trades registered early in the Australian morning to be cleared immediately if the SwapClear system is open. Subject to non-objection from the BoE, operating hours will be extended in stages. The first stage is scheduled to occur in the third quarter of 2014 and will reduce the amount of time the SwapClear service is closed from 7½ hours to 4 hours. LCH.C Ltd intends to have additional operational and management staff in Australia from the third quarter of 2014. Interim support arrangements are in place until that occurs. |
| 9. Money settlements | LCH.C Ltd should open an ESA. | Partly addressed. Expected to be fully addressed by end 2014. LCH.C Ltd has submitted a preliminary application to the Bank to open an ESA and is engaging with the relevant areas of the Bank to finalise its application. Subject to LCH.C Ltd finalising its operational arrangements and the Bank approving the application, LCH.C Ltd intends for its ESA to be operational in the fourth quarter of 2014. |
| 5. Collateral | LCH.C Ltd should consider accepting Australian dollar cash as initial margin. | Expected to be fully addressed in 2015. LCH.C Ltd is considering accepting Australian dollar cash as initial margin by early 2015, subject to formal internal governance and non-objection from the BoE. |
| 2. Governance | LCH.C Ltd should ensure that Australian clearing participants are appropriately represented in governance arrangements. | Fully addressed. LCH.C Ltd formed the AMUG in March 2014. |
| 12. Participant default rules and procedures | LCH.C Ltd should ensure that its crisis management arrangements take appropriate account of Australian stability interests. | Partly addressed. Further progress expected in 2014; expected to be fully
addressed in 2015. Australian clearing participants take part in SwapClear Fire Drills. These provide SwapClear and its clearing participants the opportunity to practise default management processes. The Bank will continue to engage with LCH.C Ltd to ensure that its crisis management arrangements take appropriate account of Australian stability interests. |
| Standard | Recommendation | Comment |
|---|---|---|
| Regulatory Priorities Specifically Related to LCH.C Ltd's Provision of Services to the Australian Market | ||
| 6. Margin 16. Operational risk | The Bank expects LCH.C Ltd to continue its work to extend operating hours and operational support in the Australian time zone. | LCH.C Ltd has set out a time line over which it expects to extend its operating
hours, subject to non-objection from the BoE. The first phase, scheduled
for early in the fourth quarter of 2014, will reduce the the amount of
time the SwapClear service is closed from 7½ to 4 hours. A second
phase, scheduled for late 2014, will further reduce the closure time to
2 hours, while a third and final phase, to reduce this to 30 minutes, is
also under consideration. LCH.C Ltd intends to have additional operational and management staff in its Australian office from the third quarter of 2014. |
| 9. Money settlements | LCH.C Ltd should finalise its application for an ESA. LCH.C Ltd should develop and implement arrangements for the settlement of Australian dollar obligations through its ESA. |
LCH.C Ltd has submitted a preliminary application to the Bank to open an
ESA and is engaging with the relevant areas of the Bank to complete its
application. LCH.C Ltd is currently engaging with market participants regarding its Australian dollar settlement arrangements. The Bank will continue to engage with LCH.C Ltd as it finalises these arrangements. |
| 7. Liquidity risk | LCH.C Ltd should develop and implement arrangements to manage its Australian dollar liquidity risk, utilising its ESA. | LCH.C Ltd has indicated to the Bank that it intends to manage its Australian dollar liquidity risk by holding collateral eligible for repo with the Bank in an Austraclear account in its own name. The Bank expects LCH.C Ltd to ensure processes are in place so that it can demonstrate the adequacy of its Australian dollar liquid resources on an ongoing basis. |
| 5. Collateral | LCH.C Ltd should consider accepting Australian dollar cash as initial margin. | LCH.C Ltd is considering accepting Australian dollar cash as initial margin in early 2015, subject to formal internal governance and BoE non-objection. Should this be adopted, the Bank will expect to engage with LCH.C Ltd regarding any required amendments to LCH.C Ltd's Australian dollar settlement or liquidity arrangements. |
| 12. Participant default rules and procedures | LCH.C Ltd should ensure that its crisis management arrangements take appropriate account of Australian stability interests. | The Bank will continue to work with LCH.C Ltd on this topic over the coming
Assessment period. It is expected that crisis management discussions will be considered further with the BoE and other regulators over the coming months. |
| Other Regulatory Priorities | ||
| 7. Liquidity risk | LCH.C Ltd should use its reverse stress-testing framework to demonstrate how its approach to modelling variation margin outflows for the purposes of liquidity stress testing captures a sufficient range of extreme but plausible scenarios. | During 2013/14, LCH.C Ltd implemented a reverse stress-testing framework
to assess the adequacy of its liquid resources to meet its obligations
on the default of its two largest clearing participants and their affiliates.
The Bank expects LCH.C Ltd to continue to enhance this framework. The Bank will engage further on this matter with both LCH.C Ltd and the BoE during 2014/15. |
| Standard | Recommendation | Comment |
|---|---|---|
| Regulatory Priorities Specifically Related to LCH.C Ltd's Provision of Services to the Australian Market | ||
| 6. Margin 16. Operational risk | The Bank expects LCH.C Ltd to extend operating hours and operational support to the Australian time zone. | Partly addressed. Expected to be fully addressed by end 2014. LCH.C Ltd implemented rule changes in May 2014 to allow trades registered early in the Australian morning to be cleared immediately if the SwapClear system is open. Subject to non-objection from the BoE, operating hours will be extended in stages. The first stage is scheduled to occur in the third quarter of 2014 and will reduce the amount of time the SwapClear service is closed from 7½ hours to 4 hours. LCH.C Ltd intends to have additional operational and management staff in Australia from the third quarter of 2014. Interim support arrangements are in place until that occurs. |
| 9. Money settlements | LCH.C Ltd should open an ESA. | Partly addressed. Expected to be fully addressed by end 2014. LCH.C Ltd has submitted a preliminary application to the Bank to open an ESA and is engaging with the relevant areas of the Bank to finalise its application. Subject to LCH.C Ltd finalising its operational arrangements and the Bank approving the application, LCH.C Ltd intends for its ESA to be operational in the fourth quarter of 2014. |
| 5. Collateral | LCH.C Ltd should consider accepting Australian dollar cash as initial margin. | Expected to be fully addressed in 2015. LCH.C Ltd is considering accepting Australian dollar cash as initial margin by early 2015, subject to formal internal governance and non-objection from the BoE. |
| 2. Governance | LCH.C Ltd should ensure that Australian clearing participants are appropriately represented in governance arrangements. | Fully addressed. LCH.C Ltd formed the AMUG in March 2014. |
| 12. Participant default rules and procedures | LCH.C Ltd should ensure that its crisis management arrangements take appropriate account of Australian stability interests. | Partly addressed. Further progress expected in 2014; expected to be fully
addressed in 2015. Australian clearing participants take part in SwapClear Fire Drills. These provide SwapClear and its clearing participants the opportunity to practise default management processes. The Bank will continue to engage with LCH.C Ltd to ensure that its crisis management arrangements take appropriate account of Australian stability interests. |