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Banque de France, together with the Autorité des marchés financiers (AMF) and in coordination with the other authorities belonging to the Coordination Committee on the Clearing of Euronext markets (CCC)1, assessed LCH.Clearnet SA’s project of clearing of European credit derivatives indexes against the European recommendations on central counterparties’ risk management2.
LCH.Clearnet SA’s project, designed in close cooperation with its prospective users, will clear a wide range of European credit derivatives indexes issued in euro, to which single names will be added in the future. This project meets the expectations stated several times by Christian Noyer, Banque de France’s Governor and Chairman of the Prudential Control Authority, that “CDS issued in euro on underlying risks in euro should be cleared by a European clearing house under the Eurosystem oversight”. AMF Chairman Jean-Pierre Jouyet said: “An important first step has been taken. We now need to extend these clearing efforts to all over-the-counter derivatives markets in the eurozone. This is a key issue not only for European regulation but also for competitiveness”.
The project was deemed compliant with the above mentioned European recommendations (which cover issues such as legal framework and operational and financial risk management procedures) as well as with the recommendations on governance and transparency applicable to clearing houses, taking into account the specific risks associated to the clearing of credit derivatives. Moreover, due to its location in the euro area and its status of credit institution, LCH.Clearnet SA benefits from settlement in central bank money, as well as from the routine access to permanent facilities and to intraday credit of the Eurosystem, which constitute an essential feature of the management of its liquidity and of the resilience of the clearinghouse, and thus contribute to financial stability.
As a consequence, competent authorities gave their consent to the launch of this activity.
The CDS clearing offer of LCH.Clearnet SA is an important contribution to the achievement of the objectives laid out by the G20 and the Economic and Financial Affairs Council of the European Union (ECOFIN) to improve and to control more efficiently the derivatives markets. Moreover, this project is fully in line with the conclusions of the Council of the Governors of the European Central Bank of July 16th, 2009, pursuant to which «given the systemic importance of securities clearing and settlement systems, the Governing Council confirmed the importance of having at least one CCP clearing facility for OTC credit derivates located within the euro area. In this context, particular priority will be given to the use of euro area infrastructures for clearing credit default swaps denominated in euro».
1Banque de France participates in the surveillance of LCH.Clearnet SA within the framework of an agreement signed in 2001, on the cooperative supervision and oversight on the activity of Clearnet as a central counterparty, for transactions negociated on Euronext markets. The authorities who signed this agreement other than Banque of France were, in 2001: the Banking Commission and the Financial Markets Authority (AMF) for France: the National Bank of Belgium (BNB) and the Financial, Banking and Insurance Commission for Belgium; De Nederlandsche Bank (DNB) and Dutch Authority for Financial Markets (NAFM), for the Netherlands. The Banco de Portugal and Comissão do Mercado de Valores Mobiliários (CMVM) joined the agreement in 2003, when LCH.Clearnet SA offered its services to the market of Euronext Lisbon.
2These Recommendations were jointly drafted by the European System of Central Banks and the European Committee of Securities Regulators and published in 2009.
