Assessment of LCH Limited's SwapClear Service Executive Summary

This report presents the Reserve Bank of Australia's 2020/21 Assessment of LCH Limited's SwapClear service. SwapClear is a systemically important central counterparty (CCP) in Australia, clearing around 90 per cent of the cleared AUD over-the-counter (OTC) interest rate derivatives (IRD) market. This market is used by banks and corporations to manage interest rate risk and to take speculative positions. The Bank has concluded that LCH Ltd has conducted its affairs in a way that promotes overall stability in the Australian financial system.

LCH Ltd has made progress towards meeting the regulatory priorities set by the Bank, but these will remain open as more work needs to be completed:

  • Extend operating hours: LCH Ltd has been working to extend SwapClear's operating hours to cover the Australian business day. In the first half of 2022, LCH Ltd is planning to move to a 24 hours, 5 days per week (24x5) operating model, as well as opening each Monday morning by 7am Sydney time. Ahead of this final step, LCH Ltd brought forward SwapClear's Monday morning opening time by four hours in September, allowing it to open by 11am Sydney time.
  • Strengthen contingency arrangements for payments: LCH Ltd has been strengthening its contingency arrangements through which cash payments, such as variation margin, can be made between LCH Ltd and its participants in the event of an outage at a payment bank. During the assessment period, LCH Ltd tested these arrangements with participants and demonstrated their capability to handle an outage at a large payment bank. Further work is planned to ensure the process is robust and suitably embedded within LCH Ltd's systems.

Other key developments the Bank took into consideration included:

  • Benchmark reforms: the management of operational risks associated with global benchmark reforms, and SwapClear's preparations for the transition away from the London Interbank Offered Rate (LIBOR).
  • Cyber risk management: enrichments to LCH Ltd's reporting and control frameworks for cyber risk management as part of its broader strategy to improve its cyber capabilities.