LCH.Clearnet is pleased to announce the successful launch today of an innovative new repo product called Sterling GC that will operate within its successful RepoClear® business.
The introduction of the Sterling GC product offers Sterling money market participants the opportunity to trade Sterling on a secured basis against a basket of UK government bond collateral, in a manner that will provide significant operational efficiency benefits and enable trading liquidity to increase. The product is expected to be used primarily as a funding tool for banks active in the Sterling markets and will be of particular interest to those members who trade in large scale and that require a standardised, high integrity framework for managing Sterling exposures.
The key features of the product are that all trading is concentrated into a single basket ISIN, netting is maximised by occurring at the level of the basket rather than at the level of individual bonds allowing all Sterling GC trades to net against each other irrespective of maturity, and settlement of the netted amounts is then achieved by using Delivery-by-Value (‘DBV’), an innovative auto-allocation tool provided by CREST. This configuration of features marks a step change improvement in automation and efficiency, and should lead to increased participation in the Sterling repo and money markets, particularly from non-UK banks. Seventeen banks commenced trading the product today; there are a further eight banks currently in the product implementation phase, expected to go live shortly. In addition to the counterparty and market risk management benefits that LCH.Clearnet provides as part of its standard central counterparty role, users of the Sterling GC product will benefit from a number of significant additional benefits.
These include:-- Trading anonymity
- Improved STP
- Ability to transact term Sterling GC trades with an automatic daily option to substitute or refresh the bonds utilised to support a settlement obligation.
John Burke, Director of Fixed Income at LCH.Clearnet said “LCH.Clearnet is pleased to launch the Sterling GC product because its introduction into the RepoClear service complements perfectly RepoClear’s existing successful Gilt product and demonstrates LCH.Clearnet’s commitment to developing and improving the post-trade environment in the European Fixed Income market through a continuous programme of product development and process innovation.
“In addition to providing Sterling market participants with a world-class innovative mechanism for clearing their Sterling repo activity and improving their ability to fund their Sterling positions in the most effective way possible, Sterling GC also represents a major strategic pillar for the RepoClear service going forward and will form the basis for a future equivalent product for the Euro area in due course.”
Mark Dearlove, Managing Director and Global Head of Money Markets at Barclays Capital said: “Barclays Capital is pleased to support the RepoClear Sterling GC product because it will provide participants active in the Sterling repo market such as ourselves with an improved operating framework that should allow business volume to increase and contribute towards an improved efficiency and effectiveness of the Gilt market in general and the Gilt repo market in particular”.
John Edwards, Director of Fixed Income Sales at ICAP Electronic Broking said "ICAP supports the introduction of the Sterling GC product and are excited about the growth opportunity that this represents for the Gilt repo market. This development will help attract wider participation in this market segment by the banks using our BrokerTec platform".
