Global clearinghouse LCH has introduced a new type of client account within its SwapClear service that allows buy-side clients to deliver collateral directly and retain beneficial title.
The client account, known as CustodialSeg, promises to increase operational efficiency and eliminate the transit risk arising where a client delivers collateral to the clearinghouse via its clearing member.
LCH noted that segregation at an international central securities depository (ICSD) ensures that such securities collateral remains client specific.
J.P. Morgan is the first clearing member, while Aviva Investors is the first buy-side client, to use this new account type.
BNP Paribas and HSBC have also confirmed their readiness to support the new account structure.
To enable a client to transfer collateral directly from its account to LCH, the client or its custodian must open a segregated account with an ICSD.
Euroclear Bank is the first ICSD to provide this service for the CustodialSeg account, which is is available for eligible SwapClear clients in the UK, Ireland, Scotland and the Netherlands, which are accessing clearing via a SwapClear clearing member.
Michael Davie, global head of rates at LCH, said: “As we see a growing number of clients onboarding and actively clearing at LCH, there’s increased focus on efficient collateral management.’
“We’re pleased to bring CustodialSeg to market as part of our ongoing efforts to find innovative ways of supporting the buy and sell side. The new account structure offers enhanced collateral protection for European clients and simplifies the way they lodge collateral with us.”
Barry Hadingham, head of derivatives and counterparty risk at Aviva Investors, said: “Being able to lodge collateral direct with LCH is a positive step as it allows us to manage our collateral delivery more effectively and to ensure our assets remain identifiable as ours, while lodged at the central counterparty."
"We’re proud to be the first client to use this new account type and look forward to continuing this work with LCH.”
