Gilt general collateral repo trading gets upgrade
01 September 2014 London
Image: Shutterstock
LCH.Clearnet is launching a new product to enhance the central clearing of gilt general collateral repo trades.
Term £GC, developed in conjunction with Euroclear UK & Ireland and the London Money Market Association (LMMA), will reduce the current operational and liquidity risk in managing gilt GC repo transactions.
Market participants and the Bank of England also provided support.
The new product includes a dual netting feature designed to optimise netting opportunities and a delivery by value settlement mechanism at Euroclear UK & Ireland that removes the need for daily return of cash and collateral for term trades.
Trades in Term £GC will be executed on repo automated trading systems and via voice brokers.
Building on the introduction in April of RepoIQ, the value-at-risk based margin methodology for the fixed income service, LCH.Clearnet also supports a margin offset for Term £GC against trades in specific UK gilts.
LCH.Clearnet plans for Term £GC to replace the existing Sterling GC product and a migration strategy has been agreed with market participants.
Trading liquidity will be moved from Sterling GC into Term £GC in Q4 2014, and any open positions in Sterling GC will be be switched to Term £GC in 2015.
John Trundle, CEO at Euroclear UK & Ireland, said: "[Term £GC] reduces liquidity risks and increases operational efficiencies in the money market. Risk reduction and efficiency in the markets we serve are the core purposes of EUI so we have been pleased to develop our delivery by value collateral services in this way.”
“The new term arrangements, including collateral optimisation and substitution, have enabled the market to move away from the daily roll-over of cash and collateral to an efficient process where the requirements to settle securities are aligned with the maturity of the underlying general collateral transactions."
The introduction of Term £GC “not only benefits the gilt repo market because it reduces risk, it also enhances liquidity management and just as importantly provides a clear financial stability benefit for the whole market,” added Ian Mair, chairman of the LMMA.
John Burke, executive director of fixed income at LCH.Clearnet said: “We have worked closely with the gilt repo market to ensure that the design of Term £GC delivers the essential benefits of reduced operational risk and an improvement in how sterling settlement liquidity is managed.”
“We would like to thank gilt repo market participants and industry stakeholders who have worked with us to design, test and implement the Term £GC product and for their support in delivering this product to the market.”
Term £GC, developed in conjunction with Euroclear UK & Ireland and the London Money Market Association (LMMA), will reduce the current operational and liquidity risk in managing gilt GC repo transactions.
Market participants and the Bank of England also provided support.
The new product includes a dual netting feature designed to optimise netting opportunities and a delivery by value settlement mechanism at Euroclear UK & Ireland that removes the need for daily return of cash and collateral for term trades.
Trades in Term £GC will be executed on repo automated trading systems and via voice brokers.
Building on the introduction in April of RepoIQ, the value-at-risk based margin methodology for the fixed income service, LCH.Clearnet also supports a margin offset for Term £GC against trades in specific UK gilts.
LCH.Clearnet plans for Term £GC to replace the existing Sterling GC product and a migration strategy has been agreed with market participants.
Trading liquidity will be moved from Sterling GC into Term £GC in Q4 2014, and any open positions in Sterling GC will be be switched to Term £GC in 2015.
John Trundle, CEO at Euroclear UK & Ireland, said: "[Term £GC] reduces liquidity risks and increases operational efficiencies in the money market. Risk reduction and efficiency in the markets we serve are the core purposes of EUI so we have been pleased to develop our delivery by value collateral services in this way.”
“The new term arrangements, including collateral optimisation and substitution, have enabled the market to move away from the daily roll-over of cash and collateral to an efficient process where the requirements to settle securities are aligned with the maturity of the underlying general collateral transactions."
The introduction of Term £GC “not only benefits the gilt repo market because it reduces risk, it also enhances liquidity management and just as importantly provides a clear financial stability benefit for the whole market,” added Ian Mair, chairman of the LMMA.
John Burke, executive director of fixed income at LCH.Clearnet said: “We have worked closely with the gilt repo market to ensure that the design of Term £GC delivers the essential benefits of reduced operational risk and an improvement in how sterling settlement liquidity is managed.”
“We would like to thank gilt repo market participants and industry stakeholders who have worked with us to design, test and implement the Term £GC product and for their support in delivering this product to the market.”
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