LCH.Clearnet is set to launch clearing for the over-the-counter wholesale London gold market in a joint initiative with the London Metal Exchange.
This post-trade service, to be introduced in November 2010, will allow bilateral OTC trades to continue to be negotiated and executed as per current market practices.
Contracts to be cleared will be captured via LME’s trade capture system, LMEsmart, with matched bilateral trades submitted to LCH.Clearnet for clearing.
Market participants will be able to benefit from margin offsets with other metal contracts listed on the LME, improved collateral management, increased liquidity and lower operational costs.
Introducing clearing to the wholesale London gold market will provide the potential to minimise systemic risk and create straight-through processing efficiencies for market participants.
Initially, clearing will be available for OTC gold forwards for daily value dates from spot out to ten years. It is intended that this will be followed by traded options on gold and then forwards on silver, platinum and palladium and all be priced in US dollars.
Roger Liddell, chief executive, LCH.Clearnet, says: “With our unique expertise in clearing a wide range of OTC derivatives and the LME’s unrivalled experience within the global metals industry, the benefits of this offering such as margin offsets and collateral efficiencies will be significant.”
Martin Abbott, chief executive, LME, adds: “We believe that this initiative will improve OTC precious metals trading and bring synergy to all parties involved, namely LCH.Clearnet, the LME and members trading on the OTC London gold market.”
