LCH.Clearnet has launched clearing for the over-the-counter (OTC) wholesale London gold market in a joint initiative with the London Metal Exchange (LME).
According to LCH.Clearnet, initially, clearing is available for OTC gold forwards for daily value dates from spot out to 10 years.
Cleared trades will be priced in US dollars and it is intended that LCH.Clearnet and the LME will also develop similar OTC clearing services for silver, platinum, palladium and gold options.
The post-trade service allows bilateral OTC trades to continue to be negotiated and executed as per current market practices.
Transactions are captured via LME’s trade capture system, LMEsmart, with matched bilateral trades submitted to LCH.Clearnet for clearing through its multi-asset clearing system, Synapse. The contracts will be marked to market using the LBMA forward curve.
LCH.Clearnet CEO Roger Liddell said that LCH.Clearnet wanted to bring all the benefits of clearing to the bullion market, whilst enabling them to preserve the OTC nature of the business which makes it such a success.
"Together with the LME, we look forward to supporting the future growth of the bullion market," Liddell said.
London is one of the largest market for OTC gold. In October 2010, the average daily turnover in London was 532 tonnes, equivalent to almost a quarter of the world’s annual gold supply, and in 2009, total OTC trading turnovers equalled approximately $5 trillion.