Euroclear and LCH.Clearnet working to create term GC repo CCP

24 January 2013
Euroclear UK & Ireland Ltd. (EUI) and LCH.Clearnet Ltd (LCH.Clearnet), together with the London Money Market Association (LMMA) and gilt repo market participants, are working on a joint initiative to introduce and adopt a new service to centrally clear and settle sterling general collateral (GC) repo trades on a term basis. The aim is to introduce the new service in late 2013/early 2014.

The new service will be based on LCH.Clearnet’s existing RepoClear Sterling GC product but will settle at EUI using its term delivery-by-value (DBV) product. Settlement of RepoClear Sterling GC trades of any term is currently conducted daily on an overnight basis via ‘rolling’ DBV transactions at EUI. The new service will align settlement with the underlying maturity of GC transactions. This will reduce daily sterling GC repo market settlement volumes and values and, hence, operational and liquidity risks in the gilt repo market.

To ensure that the change is coordinated carefully, a Sub-Group of the Bank of England’s Money Market Liaison Group (MMLG)5 has been established to oversee the joint initiative. The Sub-Group is formed of representatives from EUI, LCH.Clearnet, the LMMA, market participants and the Bank of England. There are three main areas of interest for the group to consider:

– technical development and delivery of the service by EUI and LCH.Clearnet to the specification agreed with market participants;
– revising the Gilt Repo Code to cover the change to market practice; and
– agreeing the approach to migration to, and adoption of, the new service.

The group’s first meeting will take place on 30 January. Updates will be provided to each MMLG meeting, the minutes of which are published on the Bank’s website.

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