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February 6, 2012

SwapClear Upgrade to Intraday Trade Registration Processing

SwapClear have implemented process changes to their intraday registration design, intended to streamline the registration process. Whilst this isn’t the same as “CME 2 second clearing” – the underlying structure of SwapClear with larger IM and lower Default Fund means more effort goes into an accurate risk measurement of new business earlier in the process. This update isn’t up at www.swapclear.com yet but probably will be soon.

Update from LCH

In our continuous effort to bring you an optimized clearing experience, below are the latest enhancements to SwapClear.

Improved Trade Registration

  • Now running only 3 intraday (ITD) mark-to-market (MTM) calculations per day (previously 7 per day) to ensure SwapClear is capturing major market moves and ITD losses. (This process is still very important given some OTC derivative portfolios can be very sensitive to market movements across the yield curve. Over 90% of ITD margin calls are due to MTM moves.)
  • Continuous ITD trade registration runs (TRRs) from 8:45 am GMT through to 6 pm EST. Now TRRs take only 10 – 15 minutes, start to finish.
    • Bill: This implies between 37 and 55 registration runs per day
  • TRRs are now dynamic. As one completes, the next commences automatically.
  • We optimized the clearing process by ensuring that once a clearing member exceeds his limits, all subsequent trades received will be “parked” until the member has funded his account. This ensures that no other member will be impacted. Once funded, the clearing member and associated parked trades will be reintroduced to the next TRR.
    • Bill: This means the system doesn’t get log jammed with the inter-connections of a multi-laterally netted system. In theory should trades belonging to two members need a margin call – those two members are then taken out of the margin run processing until they settle – allowing everyone else to get on with registration.
  • All of these enhancements still uphold the most efficient collateral and safest risk management approaches. The new timing still allows us to combine trades recently received (in the last 15 minutes) with the existing cleared portfolio to determine the incremental impact on the cleared portfolio’s initial margin.

Benefits

  • Increased margin call predictability
  • More rapid and more predictable new trade registration
  • Trades registered rapidly (for those who stay within their limit)
  • Quicker and more predictable ITD TRR and margin call process, while still providing maximum collateral efficiency and adhering to our robust risk management principles
  • Since launch, we have processed and registered 9,582 trades within an average of 15 minutes. (Trade registrations taking longer than 15 minutes were due to clearing members exceeding their limits and having to meet ITD margin calls)

De-Clear Process Improvement

  • De-clears on trades greater than 10 days old are processed overnight as per back-loaded trades.

Benefits

  • Large ITD calls for de-clears on old trades with large NPVs will no longer happen ITD
  • Clearing members can predict and organize funding for their accounts a day in advance, ensuring that the overnight process completes smoothly
  • These process improvements offer more predictability for timing and funding

We’ll continue to update you on further SwapClear enhancements in Q2, as we roll out our measured and phased approach to achieving the important industry and regulatory goals of real-time trade registration and certainty of clearing.


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