LCH.Clearnet Limited, the independent clearinghouse, and SIX x-clear Ltd, the central counterparty (CCP) and licensed Swiss Bank, have published a summary link agreement, which provides a framework for clearinghouse interoperability across Europe.

The London Stock Exchange (LSE) and SIX Swiss Exchange utilize the existing agreement for the interoperability arrangement between their clearing houses. The agreement is based upon a proven model, which withstood the Lehman default, according to LCH.Clearnet and SIX x-clear in the release. The model has been designed to minimize the risk of contagion by safeguarding the assets of the non-defaulting CCP and its members.

The key features include: Integrity of risk management: Each CCP retains the authority to determine the eligibility of trades for clearing; margining process preserves the integrity and safeguards of each CCP.

Protection from contagion in the event of a default: 'Defaulter pays' model ensures protection for non-defaulting CCP and its members. Distinct default funds minimize contagion in the event of a CCP default.

"LCH.Clearnet and SIX x-clear have a proven model that has withstood the largest default in history. It demonstrates that interoperability can be safe and secure so long as the structure preserves the integrity of the CCPs and minimizes contagion in the event of a default through securely ring-fencing the surviving CCP and its members," commented Wayne Eagle, director of equity services at LCH.Clearnet, in the release.

In a statement, Urs Wieland, member of the executive committee and head of risk management at SIX x-clear, said, "SIX x-clear and LCH.Clearnet understand and support the market's need for transparency. By publishing all major contents of our inter-CCP contract, SIX x-clear and LCH.CLearnet remain committed to championing the needs of our clients by providing safe, secure and transparent interoperable CCP links. CCPs should never compete on risk and when interoperability is implemented correctly risk is not compromised. The introduction of competitive clearing for UK equities on the LSE caused no market disruption and showed the true benefits o f the system— move to your favored clearer immediately or simply stay with the incumbent, all the while experiencing no disruption."