LCH Uses T2S to Extend RepoClear
LCH, the London Stock Exchange Group’s clearing house, is extending RepoClear to German government securities which will be settled through pan-European platform TARGET2-Securities.
T2S allows settlement in central bank money across borders, central securities depositories and currencies so there is no difference between domestic and cross-border transactions. The settlement platform began operating in 2015 after being launched by the European Central Bank in 2008 to end fragmentation in securities settlement across the Eurozone as the cost of cross-border transactions could be 10 times more expensive than domestic transactions.
LCH said in a statement today it has extended its RepoClear service to offer clearing for cash and repo trades on German government securities via LCH SA, its continental Europe-based entity, which already clears trades on Italian, French and Spanish government securities.
The new offering covers trades on German government and regional debt allowing members clearing these products to net their positions with other European transactions cleared at LCH SA and settled through T2S, reducing the use of balance sheet and capital and margin requirements.
Christophe Hémon, chief executive of LCH SA, said in a statement: “The implementation of T2S brings with it an opportunity to expand the number of European trades eligible for balance sheet netting, providing greater operational and capital efficiency for our members.”
Michael Manna, head of EMEA and APAC fixed income financing,at Barclays, said in a statement: “There is clear evidence that the roll out of T2S will bring tangible benefits towards improving the infrastructure services required to support liquidity in the European sovereign bond markets.”
Clearstream, Deutsche Börse Group’s international central securities depository, migrated to T2S last month in the fourth migration wave alongside the central securities depositories of Hungary, Slovenia, Slovakia and Austria. The connection of Clearstream led to a doubling of volumes on the platform and means that more than 80% of the total volume has now migrated to the platform.
Deutsche Börse said in its annual report for 2016 that it expects growth opportunities from joining T2S. “As the largest participant in this new system, we can use it to offer our clients additional services,” added the German exchange. “Completely new solutions will evolve next year, developed both within the teams and in cooperation with clients.”
Phil Brown, co-chief executive of Clearstream Banking, said in a blog that following migration to T2S the next change will be Central Securities Depository Regulation. Together with T2S, the CSDR regime aims to make cross-border settlement processing even more efficient and less costly. Under the new rules all European central securities depositories will have to re-apply for their licence to operate.
“At Clearstream, we are on track with our applications for CSDR licences and at the same time a reliable partner for our customers,” added Brown.
The non-profit partnership aims to improve equities market structure.
J.P. Morgan and Aviva Investors are the first to use this new account type.
There are 25 banks participating on the fixed income network.
Investors have the opportunity to create personalized liquidity pools.
Systematic internalisers could handle a sizable proportion of European equity trading.