Chi-East, a joint venture between trading venue operator Chi-X Global and the Singapore Exchange (SGX), has appointed LCH.Clearnet as the central clearing facility for its pan-Asian, non-displayed trading platform, scheduled to launch in mid-2010.
Subject to agreement of terms and regulatory approvals, LCH.Clearnet’s EquityClear service will clear the Australia, Hong Kong and Japan-listed securities available for trading on Chi-East. SGX-listed stocks will be cleared and settled through Central Depository, SGX’s securities clearing house and depository, via SGX’s securities clearing members.
To connect to the relevant local central securities depositories (CSDs) for settlement, LCH.Clearnet will use a local settlement agent, which will operate an LCH.Clearnet account at the CSDs. LCH.Clearnet has not named the settlement agent, but theTRADEnews.com understands that Citi will be appointed. Citi declined to comment.
The proposed arrangement mirrors that used by the pan-European central counterparty (CCP) clearing houses that were established to serve multilateral trading facilities. EMCF uses Fortis Bank, BNP Paribas and SEB as settlement agents, while EuroCCP uses Citi.
Many market observers expected that establishing a pan-Asian central counterparty that linked into local CSDs would be the most challenging aspect of the Chi-East project, some describing the project as a “massive undertaking”.
An LCH spokesperson told theTRADEnews.com today, “The project has an intended mid-2010 delivery date. It is hoped that all regulatory approvals will be gained within that time.”
Chi-East chose LCH.Clearnet after an extensive selection process during which requests for proposal were sent out to 11 potential providers in Asia, Europe and the US, and the list was whittled down to two final candidates.
According to John Lowrey, CEO of Chi-X Global, LCH.Clearnet fufilled three important criteria for the Chi-East project. “First, they are committed to Asia and committed to building infrastructure in Asia. We were not going to be their only project,” he said. “Second, we wanted to look at not only what Chi-East was today but what it could be in the future. LCH has a lot of experience clearing a lot of different products.”
LCH.Clearnet currently clears securities, exchange-traded derivatives, energy, freight, interbank interest rate swaps and euro and sterling denominated bonds and repos.
The third factor, according to Lowrey, is LCH.Clearnet’s financial strength. “LCH stacks up extremely well in that way, so we felt it was the best fit for Chi-East,” he said.
“LCH today already clears in multiple currencies and clears in virtually every currency in Asia, so they have very good experience in this space,” said Lowrey. “More important than that was that LCH’s ambitions and ability to fund and build an operation matched our ambitions. Their willingness to commit to Asia as a nexus for activity was very important to us.”
LCH said it intends to offer full support to Asian customers and will staff the operation to handle queries and processes during the Asian trading day. “Members based in Asia should expect a similar client experience to those based in London,” a spokesperson said.
In August 2009, Chi-X Global and SGX announced plans to launch the first exchange-backed, non-displayed trading platform in Asia, starting with select securities listed in Australia, Hong Kong, Japan and Singapore. The joint venture partners said Chi-East will operate with the appropriate regulatory approvals and controls, reporting, settlement systems and compliance standards.
Chi-East will also act as an independent liquidity aggregator for the sell-side and offer another execution option in the form of a non-displayed venue that will expand the range of available solutions for conducting block transactions with price improvement. Chi-Tech, the technology subsidiary of Chi-X Global, will provide the technology for the new trading platform.