How It Works

Matched trades reach LCH.Clearnet through Markit Wire once both parties have indicated that they wish the trades to be cleared via the clearing house. Trades are agreed directly between banks or via brokers.

Following receipt and confirmation of eligible transactions into the Markit Wire system, trades are governed under the rules of the LCH.Clearnet rulebook.

Members of LCH.Clearnet are eligible to clear products subject to approval.  More information on becoming a member can be found here. 

SwapClear does not publish trade prices - either in real-time or at the end of the day - nor does it provide facilities for arranging or facilitating new trades. Existing trading practices will continue unaffected.

The original trade is under the usual bilateral master agreement for the two parties, e.g. their International Swaps and Derivatives Association (ISDA) Master Agreement. When the Clearing House registers a trade, the original contract between the Participants is replaced by two contracts on the same economic terms as the original trade, and standard Clearing House terms between the Clearing House and each participant. After registration the original Participants do not have any exposure to their original counterparty for counterparty risk requirement purposes.

SwapClear determines all reset rates and calculates reset amounts. Coupon payments are netted with other payments in each currency and account to form one payment per currency per day. Margin and settlement amounts from Clearing Members' other Clearing House activities may be netted, resulting in a single payment or receipt per currency per day. SwapClear provides high-level and detailed reporting facilities, enabling Clearing Members to reconcile all payments.

All information is made available in reports at the SwapClear Clearing Member level. These may be accessed on the secure SwapClear extranet website. Information may be downloaded for reconciliation purposes, or viewed via the reporting tool.

SwapClear marks-to-market all Clearing Member positions daily, using the Clearing House's zero-coupon yield curves which are published to the Clearing Members. The sum of the daily change in net present value (NPV) of the swap positions and the coupon settlement is known as variation margin. Variation margin is paid and received each day, in cash per portfolio currency, through the Protected Payments System (PPS) and is netted with other Clearing House payments.

SwapClear requires Clearing Members to post initial margin to protect the Clearing House against possible losses incurred in closing out a defaulting members’ portfolio. The Clearing House monitors the impact of changing prices and positions on the value and initial margin requirements of a members’ portfolios throughout the day. Where initial margin has been significantly eroded, the Clearing House makes intra-day margin calls subject to a tolerance level. For SwapClear initial margin purposes, the Clearing House accepts the same range of cash and securities as for its other business. However, SwapClear Clearing Members should use 'Zone A' OECD government debt to ensure that they receive the greatest regulatory capital savings.