Assessment of LCH Limited's SwapClear Service 3. Other Material Developments

During the assessment period, there were a number of other material developments relevant to the Bank's supervision of LCH Ltd's SwapClear service to the Australian market. Some of these are the result of changes to the regulatory environment and international developments impacting LCH Ltd, while others stemmed from the operational risk management at LCH Ltd.

3.1 Brexit

The regulatory regime for CCPs in the UK has changed since the previous Assessment, as the UK has now withdrawn from the EU and the transition period has concluded. Prior to 31 December 2020, LCH Ltd was supervised by the BoE under EMIR, which was considered sufficiently equivalent to the Australian regime. As part of the withdrawal process relevant EU law has been ‘onshored’, or converted into UK law, with only minor changes to enable these laws to work effectively in the UK context.[2] The BoE remains LCH Ltd's home regulator and continues to hold LCH Ltd to the same supervisory standards under the new regime.

The Australian Securities and Investments Commission (ASIC) and the Bank have considered the effect these changes may have on the sufficient equivalence of LCH Ltd's home regime and are of the view that it remains sufficiently equivalent to that of the Australian regulatory regime.

3.2 Benchmark reform

A key strategic focus for LCH Ltd over the past year has been to support ongoing interest rate benchmark reform initiatives through its role as the largest clearer of OTC IRD globally. In January, LCH Ltd adopted ISDA's supplemental definitions to provide its users with clarity over the treatment of contracts reliant on benchmarks should a cessation or pre-cessation event be triggered (such as where a regulatory body determines an existing benchmark is non-representative). LCH Ltd continues to introduce clearing for new risk-free rate products as they are established. LCH Ltd is also continuing to transition its discounting and price alignment interest for swaps to risk-free rates, such as for contracts settled in SGD to SORA in August.

In 2020, LCH Ltd began consulting with participants and clients regarding the conversion of outstanding EONIA and LIBOR contracts into standardised contracts referencing their corresponding recommended risk-free rate ahead of the benchmark cessation date. Respondents expressed a preference for the conversion to occur as close as possible to the cessation date and, in the case of IBOR trades, for the spread component to be adjusted in the trade attributes in order to assist in hedging effectiveness and risk management. With this in mind, the conversion of EONIA contracts to €STR took place in October 2021, while outstanding CHF, EUR, GBP and JPY LIBOR contracts are to be converted in December. The share of new trading activity in products referencing these risk-free rates has increased over the past year, supported by initiatives such as SOFR First and TONA First, which seek to prioritise interdealer trading in risk-free rates.

3.3 SwapClear operational incident

On Wednesday 24 February 2021 (GMT), a major operational incident at the SwapClear service led to an 8½ hour service outage (including SwapClear's 2 hour flexible-open period) which spanned the Australian trading day. The incident prevented trade registration, required manual review for intraday margin calls and delayed the production of end-of-day reports. Despite the potential magnitude of the incident, the overall effects in this case were limited – trades were queued while the service was closed, SwapClear was not materially under-margined and brokers reportedly did not suspend client trading. The Bank is satisfied with the steps being undertaken by LCH Ltd to prevent similar incidents from occurring in the future and will continue to monitor these remediation actions as part of its regular supervisory activities.


For further information, see The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018. Available at <>; and The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2019. Available at <
data.xht?view=snippet&wrap=true>. [2]