LCH.Clearnet Piles into European CDS Clearing

LCH.Clearnet has joined the flood of clearing houses piling into European credit default swaps (CDS) ahead of regulation that will force firms to clear such products on an exchange, instead of trading them privately.

LCH.Clearnet, which is set to be bought by the London Stock Exchange at the end of the year, said on Tuesday it had launched its international service for CDS contracts, which insure the buyer against a borrower's debt default, based on leading European indexes.

LCH said the launch, which marks an extension of its established French domestic CDS service, is backed by ten of the world's largest derivatives dealers, including Citigroup, Deutsche Bank and Morgan Stanley.

"There is a real demand for competition in CDS clearing, and it is our intention to capture significant market share in CDS clearing," said Charlie Longden, the Chief Executive of CDSClear.

Clearing houses sit between trading counterparties, protecting all other firms from losses in the event that one fails, like Lehman Brothers in 2008 and MF Global in 2011.

The LCH expansion into European clearing pitches it on a collision course with the IntercontinentalExchange, the leading CDS clearing house, and rivals Deutsche Boerse and the CME Group, the other leading international clearers.

LCH and the exchanges are jockeying for position to establish themselves in CDS and other over-the-counter derivatives ahead of European Commission reforms to force these products to clear.

"In this evolving regulatory environment, the expansion of CDSClear is a positive addition to the infrastructure of the world's credit markets," said Niall Cameron, global head of credit trading at HSBC.

The CDS launch came four days after the clearer made two senior hires in London.

LCH said on Friday it had hired Dennis McLaughlin into the new role of Group Chief Risk Officer from risk management specialist AON, where he was the head of analytics.

The clearer also hired Magnus Spencer as Group General Counsel, replacing incumbent Iona Levine, who is set to leave LCH in the coming weeks.

Spencer was latterly the head of European counsel at Barclays Capital, where he worked with LCH Chief Ian Axe before Axe joined LCH from Barclays a year ago.

Last month LCH and LSE shareholders voted emphatically in favour of the LSE's plan to buy 60 percent of LCH, valuing the company at 813 million euros ($1.1 billion).

The partners expect the deal to close in the fourth quarter of this year. (Editing by Will Waterman)