LCH.Clearnet Readies CDS Platform For January Launch

The top executive at LCH.Clearnet Group Ltd. said Thursday it plans to launch its Paris-based credit-derivatives clearing service in January.

The bank-controlled clearing specialist already handles over-the-counter derivatives and would become the third European platform to migrate swaps to a central settlement platform.

"Technically, everything is ready," said Chief Executive Roger Liddell in an interview. "We're working with the French banking community to iron out implementation issues, and looking forward to going live as soon as possible in the New Year."

LCH.Clearnet plans to clear credit-default swap index contracts via its Paris-based LCH.Clearnet SA arm, which is regulated by the French central bank.

Liddell said it will start with a "small number" of bank supporters. The large dealer banks account for around 80% of CDS activity, and their backing is crucial.

Atlanta-based IntercontinentalExchange Inc. (ICE), with support from 11 dealer banks, has already cleared $1.1 trillion in swaps through its London-based ICE Clear Europe unit, replicating its U.S. market leadership.

Eurex Credit Clear, a venture supported by Frankfurt-based Deutsche Boerse AG (DB1.XE), has handled about $140 million in business, and has fewer bank backers. CME Group Inc. (CME) is awaiting U.K. regulatory approval to launch its own European CDS-clearing service.

LCH.Clearnet, a 120-year old institution that clears futures, bonds, repo and interest-rate swap transactions, is moving into the credit derivatives sector amid a broad push by regulators and lawmakers to reduce systemic risk.

Authorities in the U.S. and Europe are weighing a requirement for banks and other participants to clear trades of credit default swaps, after the complex products took blame for exacerbating the financial crisis in 2008.

Clearing, in which a central counterparty like LCH.Clearnet stands in the middle of every trade, is seen as one way to reduce the systemic threat represented by swap products, which historically have been traded on a bilateral basis. The idea is to reduce potential exposure if one trading party goes bust.

The European Commission is expected to move forward with a mandate requiring banks to clear their swaps business in early 2010, with a formal proposal anticipated in the summer.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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