It is recognised that it is as important to control operational risk as
it is to control market and credit risk, but operational risk can be
more difficult to assess and quantify. SwapClear clearly reduces oper-
ational risk by introducing standard contract terms, by simplifying
the settlement of swaps and by the removal of ambiguity in confir-
mations. This serves to reduce both the bilateral negotiations and the
operational issues caused by the handling of exceptions.
Collateralisation introduces operational and legal risk associated
with the processes of securities movements or settlements, and
through the lack of legal certainty surrounding perfection of title.
Central clearing, by providing uniformity of collateral handling
procedures, within the same rules applied to exchange clearing,
significantly reduces those risks. Day-to-day cash flows, floating rate
resets, and transaction valuation are all performed centrally by the
clearing house, thus further minimising operational risk and reduc-
ing banks’ operational requirements.
This centralised, straight-through-processing (STP) delivers a quick
and effective reduction in risk management complexity and opera-
tional interfaces.
The above contains excerpts from the LCH.Clearnet SwapClear
brochure, a full copy of which can be downloaded from their website
(see appendices).
Today LCH.Clearnet also provide the same type of facility for other
products through RepoClear and EquityClear.
SwapsWire
SwapsWire is an electronic dealing system designed for the electronic
platform designed to promote efficiencies for the OTC derivatives
market.
Its objectives are to provide
• Lower transaction costs.
• Fast transfer of deal information in a standard format.
• The facilitation of STP in OTC transactions.
One significant advantage is that SwapsWire provides the evidence
of the deal and thereby removes the need for a confirmation to be sent.
This will dramatically reduce the paperwork and process currently
undertaken by OTC operations teams.
SwapsWire supports Interest Rate Swaps (IRS), Forward Rate Agree-
ments (FRAs), Overnight Index Swaps (OIS), Interest Rate Caps and
Floors, Interest Rate Swaptions, and Credit Default Swaps (CDS) in
OTC products 113
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