Post Trade webinar
1 October 2024
On Tuesday 1st October, Daniel Maguire, Head of LSEG Markets and Isabelle Girolami, CEO, LCH hosted a webinar on LSEG Post Trade.
The session covered the basics of the OTC derivatives market and our Post Trade division, as well as future growth drivers, followed by Q&A.
Related documents
Event replay
- [Host] Good day, ladies and gentlemen,and welcome to the LSEG Post Trade webinarhosted by Daniel Maguire,Head of LSEG Markets,and Isabelle Girolami, CEO, LCH.During this webinar, all participantsare in listen-only mode.Later we will conduct a question and answer session.To submit a written question,please click the Q&A buttonat the bottom of your Zoom screen.You can submit questionsthroughout the duration of the presentation.Instructions will also follow at the time of Q&A.I would like to remind all participantsthat this call is being recorded.Questions will be answered after the presentation.I will now hand over to Peregrine Riviere to begin.- Great, thanks very much and welcome, everyone.Good morning or good afternoon, wherever you are,and welcome to our webinar.This is very much a teach-inrather than a mini Capital Market Day.I think we've become quite consciousover the last year or so there's a very wide rangeof knowledge around our Post Trade activitiesand we're particularly keen to make suresome of our newer shareholders can get up the curveas far as they need to in understandingwhy we exist, how we do business,and what the growth drivers are for Post Trade.So I'm delighted that Daniel and Isabelle are joining us.They're going to present for 45, 50 minuteswhich will leave 40 minutes time for Q&A.So please do submit your questionsand we'll do our best to answer them.And with that, I'll hand over to Daniel, thanks.- Thanks, Peregrine, hi, everybody.I'll jump straight in.So let me just quickly give you a heads upon the agenda for today so we know we are going to be talking.So first of all, I'm going to give a high-level overviewof what LSEG Post Trade isacross the different aspects of the businessreally just as a level setand then we're going to go into a bit of a teach-inon some of the fundamentals of clearing,some of the key market drivers for the businessboth now and looking forward.After that, I'll hand to Isabelle.Isabelle will step through you know business by businesswithin the clearing houses that we have,and then I will finish with talkingabout Post Trade Solutionsand some of our goals, ambitions, aspirations,and progress that we've been making to date there.And then finally, I'll just highlightsome of the additional longer-term growth opportunities.So that's just very briefly what we intend to cover today.But to Peregrine's point, really welcome Qand we'll have hopefully lots of answers for you as well.So let me go a little back to basics if I mayand just start with just as a level set,what is a central counterpartyand why will you use that?You can see on the slidesome interesting diagrams on the left.I think that the key points to really take away here,number one, what is a central counterparty?It is a central counterpartythat is sitting in the middle of the marketsand is reducing your counterparty risk.It is providing default protection.As you can see on the right-hand sideas you look at the screen,in the world of bilateral,so where people are trading point-to-pointover the counter or otherwise,you have many, many bilateral relationships.And as time has gone by,those are things that have to be collateralisedand you have counterparty exposure in doing that.If you put a clearing house,a CCP, central counterparty at the middle of that,very quickly as you trade with each other,you'd give those trades up to the clearing house.And the CCP, you'll hear us say this time and time again,will become the buyer for every sellerand the seller to every buyer,guaranteeing the trade in the case of any kind of defaultor in good times and peace time,making sure flows of profitsand losses are going across the piece.So that's fundamentally what a clearing house is doingand that's been around since the late 1800s.But we've been applyingdifferent asset classes into these OTCs,as well as exchange-traded.Very quickly, another benefit you getis when you put these things together,you get a lot of netting.So what does that mean?It means rather than having marginwith five counterparties in this example,you have it with oneand you get the longs and the shorts offsetting.So it becomes efficient from a margin standpoint,as well as from a risk reduction standpoint,and then finally, it becomes much more efficientfrom an operational standpoint as wellwhich is a very good byproduct as well I guessin terms of having one line where you have to pay a marginrather than five and so on and so forth.You can do this on an exchange-traded basisor over the counter on different platforms,and I think the key thing to take away about thisis yes, you get netting,but also when you face somebodyas a counterparty bilaterally,you have an exposure to that counterparty.Generally speaking your exposure to a clearing houseis weighted much less from a capital consumption standpointrelative to something where you have an exposureto a bilateral counterparty.So you're getting reduction and netting in margin,but you're also having, if you will,the footprint in your capitalor your balance sheet that your trading is taking up,is reducing by facing a clearing house.So as a headline,a unit of risk in a clearing houseis always going to be more capitalor balance sheet efficient relative to something bilateral.That said, clearing isn't the answer for everythingwhich we'll come onto a little bit later on.If I could now talk just a quick orientationaround the clearing houseand the eagle eye will noticewe have a couple of clearing houses.One based in Paris, one based in London,but both are increasingly global by their nature.And as part of a global group LSEG,we've got global customers,but most importantly we also now havemuch more global productsand we're overseen by global regulators.So what you can see here, we areacross a lot of these, if not all,most of the important asset classes from interest ratesand inflation to foreign exchange, to fixed income repo,to credit to equities and so on.And within that we are now touching customers,be them as direct clearing membersor buy-side clients through a clearing member,in over 60 countriesand that's growing at a pace.We have 235 members of our servicesdirectly connected to usand about 5,000, approaching 6,000 clientscoming through those members.But importantly, so that's the participants.But product-wise we also now clear in different formsin our foreign exchange,foreign exchange and interest rates,27 different currencies,and we're also clearing 14 sovereign debts.So very global by its nature.We're meeting the customers what they areand we have a very strong track record of growthand delivery of new business initiatives, new improvements,and new products and services.So you can see on the right hand side there,the collateral balances, the margin, and the risk,and the management has been growing at a pace.The volume of tradesand flow that we have has been growing materiallyand then importantly from an income standpoint,it's not just about trades and collateral.It's about growing the top lineand we have a very strong track recordin the last four or five years, 10%,and if you look over the last 10 years,more like 19% growth.So I guess that's a sort of 30,000-foot viewof the business of LCHand it's very much part of a multi-asset class offeringthat we have as an overall group.If I zoom in a little bitand bring it into more detail,let's look at what we sort of,how we think about the business maybe at 10,000 feet.On the one hand,we have what I refer toas core financial market infrastructure.FMI as I'll refer to it going forward.Core FMI, that's really the clearing businessand the regulatory reporting.I've touched quite a lot on what that is,but it's critical market infrastructure, long-term partner.As you'll probably be aware,a lot of it was previously owned by the members,the customers who then over time sold down their shareand brought that into LSEG,but it's massively reducing your market risk,it's improving liquidity through the clearing side,and it's also really importantly leading industrythrough many times of crisis,be them default, more on that a little bit later,or in just more sort volatile marketsand environments that we've had to live inand increasingly are happeningon more regular occurrence than the past.But on the right-hand side,what I'd refer to is not regulated,but less regulated, new developing services.We took a view a number of years ago that clearing,whilst we're very fond and enjoy clearing,there's much more route that we can turn our hand toand maybe clearing isn't the answerfor every product in every asset class.So over the last number of years,we've been building out in conjunction with our customersin a similar operating model with the industry,building out and acquiring a few businessesand integrating those that are mentioned here,Acadia and Quantile,to build out these complimentary Post Trade servicesreally for what I'd refer to as the bilateral,so the non-cleared market.But in a similar vein, looking at trade processing,margin, settlement, and capital,and risk optimisation for the customer.So really taking all of our wherewithal,all of our experience, and our heritage,and our background in derivativesand securities for clearing,but really applying that across into the bilateralor the uncleared world via Post Trade Solutions.And ultimately whilst not regulated,the more important these services become,the more they'll become a node in the marketplace.Perhaps over time the more highly regulatedthey will become as well,much the same as clearing housesbeing important nodes in the industry.So that's kind of roughly how we sort of split it.Core financial market infrastructureand then Post Trade Solutions.What does it mean to operatesystemically critical financial market infrastructure?It's hard to sort of really draw a picturethat brings that to life,but what we intend to do hereis just give you a sort of a very high-level pictureof our connectivity globally across the market.We are convening market participants.Clients I refer to just to give some of the nomenclature,that's buy-side clients, asset managers,hedge funds, pension funds, insurance funds, and the like.Clearing brokers, a clearing arm of the major banksout there who refer to as members.Clearing brokers are the avenue,the broker who is bringingthe clients into the clearing houseand then members, really the dealersor the bank side on the house sideof the various different banks.So a large constellation of people in that,but also we have a lot of connectivityto other market infrastructure providers as well.Trading venues, exchanges, multilateral trading facilities,custodians and settlement depositories and the like.So really sitting in the middle of that,hence the name central counterparty.But in addition, on the left-hand side as you look at it,industry trade groups, we work very closelywith the industry at large,be it the ISDAor the FIA group, amongst many others as well.Too many to mention.And similarly with the positionand the criticality of what we do,we find ourselves somewhat in the media and the press.So we embrace that as welland then finally, and probably really importantly,a convener around regulatory policy makers and central bank.Running these businesses is a highly-regulated business.However in addition to running these things,we're also very much early stage in the formation of policyas we're looking at various different rollouts of regulationor policies that are going to be rolled out across the globeor in different jurisdictions.So very heavily involved with thatand I think final points on this slide before we move on,yes, we're a convener or a thought leader or an innovator.And then when you think about the personwho we're speaking to in a lot of these firmsand a lot of the customers,it's the heads of trading.It's the heads of resource management.It's the heads of treasury, CBA,or various firms bank resource management.So I just think it's important to show youthis isn't really just a Post Trade thing.This is really our customer baseand our relationships are really at the front end of things,the trading and the P&L ownerswithin the various organisations who are customers.If I try and put this in the contextof the overall group, the group LSEG,what you can see is we touch in a lot of different areasand generally most people will imaginePost Trade comes at the back end of this.Now that's true to a point,but post trade and capital optimisationis something that happens pre, at, and post-trade.So perhaps if I was to redraw thisbut it would get too complicated,I'd be saying that Post Trade really is across this spectrumof pre-trade execution, post trade,and why is that?When you are putting a trade on,before you put a trade on,you need to understand whereor if it's going to be cleared.And before you do that trade as well,you need to have pre-trade checksaround credit or collateral availability,all things that are clearing house does.So in reality you are thinkingabout where the trade is going to reside post trade,pre-trade, and at trade,and the economics of putting a tradein one clearing house versus another,sometimes you've seen this sort of manifest itselfin something known as CCP basis.CCP basis is something that basically showsthe difference of the cost of putting a tradein one clearing house versus another,and that's then representedin the actual execution price of a trade.So probably too much detail,but fundamentally where you put the post-tradewill have a material impact on preand at trade in terms of how that trade is pricedand the bid offer around that trade.And I guess what you can see in all of this,I've mentioned the globaland the multi-asset class at the bottom,but what we're really doing is linking upwith all the different elements of the group hereand we'll have some more detaila little bit later on how we do that.But fundamentally this Post Trade businessis approaching about 15% of the revenue,15% of the EBITDA of the group,and that's been growing nicely over the last few years.In the next section,I'm going to take you back a little bitto some more first principles.Some of you will know this,but I'm conscious there are peoplewho are a little bit newer to the story.So let me just give a little bit more contextaround where we've come fromprobably in the last sort of 15 years.If we can just move forward please.So sometimes there is a bit of a misnomerthat a clearing business is 100% regulatory-driven.I'm not going to denythere is some regulatory tailwinds around this,but actually if you look at the last 10 years,a lot of the drivers have been much more about a drivefor efficiency in capitaland in balance sheet.So let me just talk you through this a little second.In 2008, a little bit of a watershed moment,Lehman Brothers, Bear Stearns,and then subsequently we've had other defaults as well.But then we had the G20met in a very seminal moment, Pittsburgh September 2009,and they made the decisionand the decree that OTC derivatives,over-the-counter derivatives must be collateralised, A,and B, some of those not just collateralised,they must be cleared.And that was really the starting pointof all these uncleared margin rules and clearing mandates.They took various formsin the US Dodd-Frank regulatory reform in 2010.EMIR reform subsequently and other partsaround the world as well,and plus MiFiR and now MiFiD.But we saw four, five, six currencies in interest ratesand credit being forced to be mandated to clearfor certain shapes and sizes of customers.But as I referred to earlier,there are 27 currencies cleared.There are 14 debts cleared.There we are, we are way beyond regulatory mandate hereand what is really driving that.On the second half,we refer to Basel II and III,Uncleared Margin Rules and the like,and at the far end,things like counterparty exposure methodsto the standard approach to counterparty credit,G-SIB and leverage ratio, lots of acronyms.Headline, derivatives are consuming,OTC derivatives are consuming capitalfrom a bank's perspective.And if a customer trades with them, a buy-side customer,they are still leaving an imprint on the balance sheetand capital consumption of that bank.So these derivatives, not only are some of the mandated,but in addition they are leaving an imprinton the balance sheetand capital consumption of a lot of the major firms.So there's been a real pushto find ways to make those more efficient.Clearing is clearly one of the answers to that,but that is really where we startedto move into other spacesas well with Acadia, Quantile, and SwapAgent.We're saying maybe we can't clear everythingfor good liquidity or risk reasons,but what we can do is bring a lot of the toolsand capabilities we've developed in the derivativesand securities markets and clearing,and start to apply those in the bilateral space,and reduce the pressure on the balance sheetfor a lot of the firms,and also bring a lot more efficiencyaround their uncleared positionsas well that have started to attract margin.So headline there's definitely been some tailwindsover the course of 2008, maybe through 2015-16,and perhaps a little bit later.But in the last five to six years, if not longer,we've seen a real pushmore from a capital and margin standpointwhich are pushing peoplemore and more towards the kind of toolsthat we've been buildingand creating both in clearingand in Post Trade Solutions.At the heart of what we do thoughand what are you buying, what is the product,we try and sort of make it many things to many people,but fundamentally you're buying default protection.You're buying counterparty credit risk reduction.But in order to do thatand when you start to bring all of these elementsinto a clearing house and these nodes,and this is why they've becomesomewhat caught in the public eyeand the political eye sometimes,you're putting a very heavy relianceon these nodes in the industryand the marketplace called clearing houses.So they have to be uber strong, uber resilient,and uber available or hyper available all the time.So we've had to build a super resilience capabilityin the organisation to make sure that we can scaleand grow as the businesses and the customers grow'cause nobody expects a clearing house not to be working.It has to work every second, every minute of every dayand it has to have scale, it has to be global,and has to be able to support the clients wherever they are.But one of the fundamental elements of thisthat has become increasingly marginalised in conversationis financial risk management.We spend a lot of timewith our regulators, with our customers,with policy makers talking about non-financial riskbecause of the importance of these nodes.But financial risk managementis absolutely at the core.And we are the gold standard.Credit risk, market risk, liquidity riskrun through our veins every day.We have to be on top of our game every single dayand how does that really show up?In these kind of black swan type events when we see defaultsor major market stresses,we have to be metronomic.We have to be on our game every minute,every second of every day,and we've had a number of defaultsover the course of our history.But fundamentally what lies underneath thisis this gold standard risk modelwhich we can apply both to clearedand increasingly to uncleared as well.So just quickly going through the default processand you know as investorsand analysts think about thiswhen they ask us questionsaround what capital do you have at risk?Well, the first thing to say is we are super well-insulated.We have margin, initial marginwhich is the amount we charge for every contract we clear.We do P&L every day.We call that variation margin,and then what we have is a defaulters,sorry, a default fund where we do stress levelsand we calculate an amount,and we hold the default fund.What is that doing?It's protecting in the eventuality of a default.So our default waterfall, as it's often known,is a defaulter pays model.So what we're saying here is if someone defaults,Lehman Brother being one of the more famous ones,the expectation and the intention is that they will payfor their own demisethrough the contribution of the financial resourcesthat they've given to us as a clearing house.And in our history since 1888where we've had more than a dozen defaults,we have never used anything other than the resourcesof the defaulting party to clean up the defaultsand get back to a stable market environment.We have different default funds for different services.We also have some of our own skin in the game as welland that sort of incentivises usto keep the highest upon high standardsfrom a risk standpoint.So we like to think of ourselvesand we are encouraged by our customerswho would ultimately mutualise to make surethat our risk standards are at the highest level.If there is competition on marginor competition on risk,it's competition on being at the highest standard,not at the lowest standard.So as I said,we've never used any resourcesother than those of a defaulter.A few events here just to give yousome sort of context of our track record.I mentioned Lehman Brothers,I was personally involved in closinga lot of that portfolio out,but also it's not always about default.It's about being sort of steadfastand metronomic during periods of high turbulence,market dislocation as well.We've seen a lot happening as the central banksopened up their purses during 2020 and COVID, 2016.A lot of market volatility around thatand subsequently a lot of policy involvementaround where things are going to be cleared.We've had obviously the ongoing invasionof Russia and Ukraine.We saw things in the US last yearas well with Silicon Valley Bankand the regional bank crisis.And then on top of all of thisand I think this, for me, was a real coming of age for usas a business, LIBOR transition.As a result of all those things since 2008,we have found ourselves being the central nodein the derivatives market.We have a large percentageof the LIBOR index wholesale market sitting with us.Working closely with industry associations,customers, and the like,we took a leadership positionin helping the transition from LIBORto the various different alternative reference ratesthat came about, and that really was a real major pointfor us where historically we clear what the market trades.Historically we worked with the market.This is where we took the leadership positionto help the market move from an old world to a new worldand this was lots of precision,atom splitting in some ways,but it really put us at the forefront of the industry.Said hang on a minute,we can help lead the industry.We have an opinion.We have a role to play hereand that's what we've continued to lead off withinto our new initiatives as well.So in some ways encouraged us to bea little bolder in how we think about thingsand how we think about ourselves as well.But bottom line, our role in all market events,be them default, be them turbulence,be them market dislocation,it's not to have an opinion on them.It's to be steadfast, metronomic,and do exactly what's expected of usand not have interference, and changes in margin models,and introduce surprises into a systemthat is, at the time, somewhat fragile.I'll be handing to Isabelle shortly,but I just want to finish on this sectionwhat are the sort of key market drivers?People often ask meabout cyclical versus secular trends around this business.Are you just a regulated business?Are you just a volatility-driven business?And my answer to that is absolutely not.They are good tailwinds,but there are different fundamentalsthat really drive this businessand its performance and its growth.Break it into three areas.One is market trends,one is policy and regulation,and then the final one is creating, and innovating,and building new things.So as you take a step back,first and foremost, we see ever-growing,and ever increasing the amount of debt issuance by governmentsand corporates for that matterwhich is raising demand for repos,but also raising demand for swapsand interest rate hedges and inflation hedges.So fundamentally the inputinto a lot of the derivatives market is issuance.And we're seeing more and more of thisas developed governments are issuing more and more of this.But we're also seeing deepening financial marketsin a lot of markets such as Asia, as an example,as their markets evolveand develop even further,and being much more pervasivewith the derivatives market as well.So we're seeing growthboth in some of the more developed markets historically,but also those economieswhich are deepening their financial markets such as Asia,really growing and creating an ever-growingand somewhat insatiable demand for derivatives as well.So there's fundamentals that are really driving thisin the first instance.As I mentioned, of course,there's market volatility around thisand we're not here to make predictionswhether markets go up or markets go down.Volatility is generally good for our business,but lots of things can drive that.It can be economic sentiment.It can be central bank rate moves.It can be geopolitics.It can be more than that.So we will see intermittent spikes in thingswhich drive volume and drive flow,but fundamentally it's reallythe underlying economic activity that drives it.There's of course policy and regulationand I think we look at itthrough two or three different lenses.One is there's been mandates, that's pretty straightforward,but there are also capital rules that come in as wellwhich have been another sort of push in our direction.And as I've just mentioned,you could put it in market trends or policy,but really central bank activity as well.So we are a recipient of those elementsand we have a business that is very much exposed to those,but in a sort of all-weather way,be it market up, market down, risk on, risk off.You generally see people expressing thatthrough interest rates, through inflation,through debt issuance, or through foreign exchange.And then finally, we aren't a business that sits stilland waits for things to come to us.We are constantly investingin our underlying business and our products,Isabelle's gonna talk a little bit moreabout that in a second,but talking some of the different things.Moving into the bilateral flow away from cleared,a big departure and a big innovation,but also there's a lot of improvementswe're constantly doing to make our offeringmore and more attractive to our customers,and fundamentally making it more and more valuableand more efficient for them as well.And we'll talk about this in a second,launching a new US futures servicewhich just went live recently with FMX.So you've really seen a drive from our customersfor more optimisation of their financial resources,their scarce resources, I think that is a fundamental trendthat's not going to go away anytime soon, if ever.And we are constantly investingand adapting to make surethat whatever the economic policy isor the economic activity is,we're building products and servicesthat are going to capture thatand bring real value to our customers.So with that, I will hit pause for now.I'll hand over to Isabellewho's going to talk you throughsome of the various businesses we haveand the opportunities, market position,and track record, Isabelle.- Thanks a lot, Dan.Hello, everyone, from New Yorkwhere I arrived last night.Really excited to be here, and be with the team,and meeting some of our biggest members and clients.You've heard from Dan about clearingand the role it playsand the market drivers.I thought that on this slide,I would explain to you why LCH,we are a CCP, but why us?What is our right to win?And the first oneis around that deep partnership with the market.It's very much part of our ethos.It's also part of the way we sharerevenues with some of the market participantsand I'll come back to that in a second.And what that doesand this strong and deep partnership doesis to lead to procreation,so we do not, and co-design.We do not put products on the shelvesand then just push the products from the shelves.We co-design with the market participantswhat is going to work for them.And it's that that creates the network effectand the adoption much quicker than you would seein other clearing houses.And so that's a very important one for us.The second one is the fact,and Dan alluded to that,that we are very safeand we're very trusted.We embrace our regulators.So yes, it's a burden,but one, frankly it's a barrier to entryand also we embrace thembecause we want to work with themand we want to make the market safer.So I think that's a really important point for usand I would say that's the second sort of big bucket.And the third one is,that I wanted to mentionis that we also deliver value to our clientsbecause we are global clearing house.We are the only global clearing houseand there's no other one out there.And we deliver margin efficiency, as Dan said,in what he mentioned before.We help reduce the pressure of operational complexityfor our members and their clients.We also create, for some of the products that we launch,a bit of competitive pressurewhich the market likesbecause it allows them to have more pricing poweron some of the other providers away from us.So we can move to the next slide.I'm going to be slightly quicker in order to be ableto get to the Q&Abecause I saw some excellent questions in there.On this slide, you've gone through with Danthe sort of timeline of what's happenedand the market events that have changed the landscape,so I'm not going to go over those again.I just wanted to say that we've always adapted.We've always adapted and more than adapted...We've had, over the years,I would say the foresightto really come early with what we thinkthe market will need to adapt to some of the trendsthat we're seeing emerging.And that goes back to what I said in the previous slidein terms of the co-designand that ethos of partnership with the market.That allows us to know,because we are in contact with them all the timeand we work on things with them,what they will require as they see those changeshappening in the market.And it's certainly the case for CDSClear.It's certainly the case for ForexClear.It's the case for listed rates as well.You know they're very happy to introducea bit of competitive pressure in the systemand for ForexClear, it was clearly coming from a needto adapt to some new regulationsthat were going to require more capital for them,especially with SA-CCR, but also UMR on the buy-side.So we are anticipatingthanks to our proximity to the market.That's what I would say and summarise.If we can move to the next slide,I wanted to show you what our economic model was.In relatively simple terms,we have nearly a quarter of revenuesthat comes from members feesand it's a bit like a subscription model.So you have several tiers.You can subscribe to a tierwhich allows you to do a certain volume.You can subscribe to a lower tierwhich will cap the volume at a lower number,and you can start with oneand then move up the ladder to a higher tieras you see that your business is increasing.So that's on the members' side.We have another way of making moneywhich is on the collateral side.We charge a collateral fee,but we also make money from the collateral that we collectand we behave in that,we behave a little bit like a,for those of you who are really well versed in banking,it's a little bit likea central bank's reserve management unit.So we make money,but with a lot of constraintsbecause we have to remain liquid at every step of the way,at every point in time.So we don't take undue risk.We don't invest in long-dated instruments.We don't take naked counterparty risk.A lot of what we do will be in the form of reverse reposthat are going to be relatively short-term.But just for you to understand,there's a link betweenof course, the way that we manage that collateraland the strategy that we have in the clearing house.So not only it's linked to the services of course,but it's also when we decide to accept a new non-cash,a new security, for example, in the clearing house,we think about what would work for the marketand what works with the areas of developmentsthat we want to push for,again, pushed by the market participants.I can give you an example of that.So if we want to do more workbecause the market is asking us towith the European pension funds,we are going to be thinking about onboarding some securitiesthat are coming from northern Europewhich are securities that those fundsreally value in terms of posting.If we want to do more on the Asian side,one of the things that we are working onis to onboard some specific government bondsthat are government bonds,that are Asian government bonds,again, in order to link up with our strategyso everything is connected.The other way we make money,and half of it as you can see, is from clients.The clients that Dan was explaining are coming throughand via the clearing brokers into the clearing house,and there it's much morea sort of pay-as-you-go transactional fee.On the cost side,so if I forget about the revenue side for a second,on the cost side,we have a profit sharewith a group of founding members of LCHand we don't have that for all the asset classes,but we have that for Swaps, we have that for FX,and we have that for CDSs.And it served us really wellbecause it helped uscement that partnership with the membersand with the market that I've mentioned a few times,and it served them well as wellbecause it's been profitable for them over the years.We also have cost, of course,like you would expect in a business like ours in risk,in technology, in compliance, in operations.I would say that the majority of the costs that we haveand the majority of the teams that we haveare really risk, and technology, and operations teams.Those are the teams that are the teamsthat at the heart of the CPP are running the CCP.EBITDA margin is around 50%and we think it's pretty healthy.And that 50% is after deduction of the profit sharethat I mentioned before.Now if we go business by business,so let's start with the biggestof our businesses which is SwapClear.It's the longest Wstablished and the businessand well, the longest established, I don't know that.Maybe equities sort of predates itor commodities if we go back to the 1800s.But the fact is that it is our biggestbusiness without a doubt.And the customers come to usbecause of its breadth,because of its global reach,because of the cost savingsthrough the savings from a margin efficiency perspective,but also because of peace of mindand the sort of predictabilitythat they have when they deal with us with a servicewhich is so large and so well-run.I can say hand on heart that we arethe gold standard of the market.We clear 95% of all OTC IRS vanilla productsin 27 currencies and all tenors.The only exception is yenbecause we do not have the licenseto clear onshore yen swaps.And so we have a market share in yenwhich is the international market shareand which is around 47-48%.And again, we provide deep pools of liquidity.We have significant portfolio margining opportunities.But we also lead,and again, Dan said that before,but in risk management standards.And when you lookat all the sort of market events that have happened,the market really values thatbecause the last thing you want when you're facing a CCPis a CCP which is a bit tricky when you have market eventsthat are coming your wayand we are exactly the reverse.I mean, we don't do ad-hoc margin callsbecause we manage margin in anticipation of shocksand that has served us and the marketvery well in the last few years. We are predictable.So now moving on to growth for SwapClear.So SwapClear has grown a lotand you might thinkthat because it's very large,it probably doesn't have that much potential for growthand you'd be wrong.It has a lot of potential for growthand it has a lot of potentialfor growth for various reasons.One, because I think it's fair to saythat it's a businesswhich is almost immune to whether the environmentis the low rateor a high item environment, right?So unlike the banks that, as you know,will be making more money when the rates are higherbecause of the NIMs,SwapClear is a business that sustainsa certain amount of activity when there's volatility,whether the volatility is comingbecause the rates are going upor going down, doesn't really matter.And I think that's somethingwhich is really important to understand for this business.And the level of volatility that we see nowwe believe is going to be sustainedfor a lot of different reasons,and we can go into that.Some of them being geopolitical,but we do believe that it's going go be sustained.The other reason why it's going to continue to growis that there's some very clearly outlined elementof regional developments related to SwapClear.So as I told you, I'm in New York.We are launching and we have launched FMX,the listed rates business that connects to FMX,and we're quite excited about that.That's an opportunity for growth for that business.There's an opportunity for growthwhich has started to materialise on the Asian sidewith the deepening of financial markets in Asiaand you have some of the financial institutionsthat were clients that are becoming members.You have an overall growth of clearing in the region,partly pushed by in some casesa later implementation of some global regulations,but also by a maturing of some of those markets.And it's across the regiondefinite potential for growth that we started to see.The other one is on the EU side.We'll take the question when it comes.I saw there was one around EMIRand the impact of EMIR.The reality for us is that we continue to see growth,very significant growth including on the EU sideto accompany the growth of Europe as a region,and we continue to capture that growth.But I just wanted to point out on that graphbecause I haven't presented the graph, just the IMwhich has grown very significantly over the last few yearsand which not only sort of exemplifies the growth,but it so creates even more of an anchorfor the growth to attach itself to.On this slide, I wanted to start to talk about ForexClearand I realised that we maybe havetalked a little bit too much,so I'm going to try to go a bit fast.So ForexClear is of course much smaller than SwapClear,huge potential for growth.It's delivering around double digit growth every year nowand in terms of the potential,this is a gigantic asset class.And so the potential for clearingis quite significant in terms of TAM.It's not a business where we have real competitionin the form of another clearing house.Our competitors are the prime brokers in FXand it's convincing the marketplaceof all the advantages of clearing.And for that, the more they're clearin terms of the sort of sub asset classes in FX,the more benefits they seefrom a margin efficiency standpoint.So the strategy in FX is very clear and very well-outlined.I mean we basically have to build liquidity first.So we call it, first of all, FX Options activation,for example, which is one of those examples.It's all the members that we have that are connectedfor them to really clear as much as they canfrom an option perspective.The second one is to get as many banksas possible to onboard to the service.Again, because they are the ones who are going to bethe liquidity providers in the serviceacross the various asset classes.Then it's to develop smart clearing and NDF matching,and we're starting to onboardsome significant names that you will seeover the next couple of weekson the Asian side to NDF matchingand to clearing which is pretty exciting.Another thing that is on the roadmap for FXis to be part of the main session of CLS.Again, really significant, it meansthat much more efficient for the banks to connectthan having to connect two sessions.And then it'll be to offerother CLS currencies like the Nordics.And in parallel to that,we are working on an offering of CNH deliverables so,and a solution on CNH deliverableswhich won't go via CLS.It will go through Hong Kong.So I just gave you that as examples of a roadmapthat we have for FXwhich is extremely well-defined and articulated,and that we track very, very clearly with quite a few setsof KPIs related to each of those initiatives.I mean, any time it's growinga little bit as a hockey stick as you can see.I mean, it has grown at a compound rateof 16% over the last six yearsand Asia is a very big engine of growth, of course.And there's more to come from therewith the CNH deliverable initiative that we haveand that we are working on.And as I mentioned before,we are working closely with CLSto make it easier for the marketto clear by being part of one session as opposed to two.So that's on the FX side.Strong growth and it's an inflection pointin terms of the sort of startof the hockey stick that you can see.If I move to RepoClear.RepoClear, the drivers are slightly different.I'm just going to take you away for a secondfrom a sort of RWA driver.That's not the main driver for clearing for RepoClear.It's balance sheet efficiency.It's another scarce resource that the banks have to manageand that drives more into,that drives more of that business in RepoClear than RWA.There's also a bit of RWA optimisation,but it's mostly balance sheet optimisation.It's a very big business for us.It's run across two entities,the French entity and the UK one.One clears euro-denominated repo and cash bondsand the other one does the same in sterling.On the UK side,we clear about 70 to 80% of the interbank marketand we have no competitionwhich means that our competition is the uncleared.On the euro side,we clear north of 90% of the interbank marketand we provide deep liquidity for our members.And again, the balance sheet optimisationis very key for our membersand as you can see,and that's what we were trying to demonstrate in the graph.One of the fundamental drivers of the growth of our businesswill continue to be the ever-extending balance sheetof the governments across the globeand the fact that they continue to issue sovereign debt.So that won't stop,but the next frontierwhich is really attractiveand exciting for us, is to incite the buy-side into clearing.And as we speak,we are starting to onboard significant asset managersinto the service as we really developthe buy-side of that business.A quick word on CDSClear and equities.In CDS, we have made a huge progress on the European sideand in the clearing of credit derivatives.We offer a wide range of product options.We have been so successfulthat we have pushed our competitor awayand the main competitor has retrenched to the US.So this is a businesswhich has grabbed market share on the European side of itin a very, very significant way over the last few yearsto such a point that again,and remember what I said before,what we do is not sort of self-invented.We do it because we are working with the marketfor the market to define what we should do next.And the market has asked us to move now CDS clearingto the US or to start CDS clearing in the USin order to create that competitive pressurefor the main incumbent that they want to see so,and again, coming from the market demand.In terms of equity clear,I'm going to be very, very quick,You know it's been well advertised that the businessthat used to be in LCH SA has migrated to Euronext.I'm going to talk only about the one that remainswhich is the one on the UK entity side.It's a business which has potential for growth,but it's a massively competitive business.And it's probably the most competitive spaceof all the businesses that we operate into.To give you an idea, in European equities,there's something like 22 CCPs that are playing a role.So they not all do the same as the other one.I mean, there are some verticals in there,but it's a very competitive spaceand what we do is that we continue to work with our membersto make sure that whatever we design, whatever we do next,whatever new efficiency we can think ofor new underlying products,we do it with themso that we continue to anchor them on our side.We're very committed to this business.We're not going anywhere,but it's not a space which is an easy space.I want you to be very clear about that one.I'm going to stop there for Dan to say a couple of wordson uncleared before we take the questions.- Thank you, Isabelle, I'll just get straight into things.So uncleared segment, let's talk about uncleared.We've talked a lot about clearing.I think Isabelle's covered that very welland we'll have no doubt loads of questions.Why have you heard Davidand MAP talk around this in a few different presentations?It's simple, but it's really important.Number one, when you look at the scopeof the marketplace across interest rates,across foreign exchange, across equity and across credit,you can see on the slide,a large proportion is not cleared.Now there are a variety of reasons why that may be the case,but the fundamental point is we are a business,and we are a group of people with an expertiseand a prominence in the derivatives,and for that matter, the security space.We take the view that we can solvequite a lot of the challengesand problems in this space.Clearing being a solution for part of it,but not necessarily for all of it.So when we talk about unclearedjust to make sure on the nomenclature,I mentioned bilateral earlier.Bilateral trade, two people trading togetheror uncleared, they are the same thing.When people trade in a bilateral way,those trades remain uncleared.Some bilateral trades will beor unclear trades will be with collateral,some will be without.That's driven by some regulationcalled Uncleared Margin Rules.So what you can see is there's still quite a portionthat is not cleared on the interest rate side,but that's really predominantly movinginto what I'd refer to the non-linear.So option products like swaptions, caps, collars, flaws,and perhaps cross-currency swaps.Whereas in foreign exchange,a very, very big marketin gross value and transactional flow,a large portion of that isn't cleared.And why is that?There are not clearing mandates around these things.A large proportion of the foreign exchange market,as Isabelle talked about, is in spot.So it is not really shaped for clearing,but there's definitely an opportunityin forward swap optionsand non-deliverable that we've been talking about.So quite a shift here.Quite a lot to go atand when we speak to our customers,it's a lot of their uncleared spacethat really is an opportunity for us.So maybe if we just move forwardand let me explain what we're trying to achieveand what we're trying to do,in fact, what we are doing in this.So I referred earlier to the G20in September 2009, Pittsburgh, that summit,and at a headline level without reading all the script,what they said was that thoumust collateralise your derivatives.Some of that was cleared.We've talked a lot about that,but some of that was uncleared.We've referred to earlier in the slidesof UMR, Uncleared Margin Rules.So there's been a big focus to collateralisewhich is just meaning that some products like FX Optionsand non-deliverable forwards, as examples,they, if traded bilaterally and remain unclear,they actually attract margin.So perhaps clearing is the answer,but there are also a raft of products like forwardsand swaps in FX,swaptions and cross-currencies for that matter,that are not mandated to clearso you don't have to post margin necessarilyor in some you do,but the reality is that they are consuming a lot of capital.So capital being different to margin.So there are regulatory pressuresfocusing on you're either going to get charged marginor you're going to get charged increased capital,or in some examples, both.Then secondly, a lot of opportunity to really improve this.If you speak to people about what is their infrastructureand their architecture choreography in the unclear space,they'll generally tell you it's very, very messy.Many different pieces of the puzzle.Really, really hard to be streamlinedand straight through on this.If you think of what you're getting clearingand you have this uniformity from trade through to settlewhereas in the uncleared worldthere's all these different pieces,bits and pieces as well.So this technology can help us do that,but we need to bring some orderand centralised capability to that,as well as unleashing some technologies.But very simply put, as an example,in the uncleared world,one of the banes of people's lifewill be that they have disputes.They have a difference of opinion on valuation,difference of opinion on collateral.In clearing, we don't have that.We just the clearing house says the value is this.You pay your margin.There are things we can apply from clearingto the uncleared spacewith the right partnership around that.So very quickly, lots of things putting pressureinto the bilateral space.Out of that, we have Post Trade Solutionswhich is basically working in that same business modelclosely with the customersthrough a deeper partnership to build solutionsand resilience so that we can makethat piece of the market much more efficient.Bottom line, you will never find someonewho trades cleared rates or uncleared rates.You'll find someone who trades rates.They want solutions for the entire chainacross their rates portfolio,or FX, or credit, or equity.So that sort of neatly lines up here.If you think about the schema,the schematic I think on the right-hand side,the PTS infrastructure,on the LCH side in the sort of teal colour,central rule book, central rules, standards.Standardised and transparent riskand initial margin calculations.Variation margin, so on and so forth,so you have very clear prescribed uniformityin how those non-standard tradesbecome standardised through process.What we are looking to build on the left-hand sideis a lot of the same.In your traditional bilateralwhich I've referred to are uncleared,you'll have a myriad of different agreements,and legal agreements, and collateral agreementswith each of your individual counterparties.If you bring it into a more centralised area,Post Trade Solutions, where we're having this,what we call the the clearing house for the uncleared world,we can have a centralised rule book,a centralised collateral agreement,a centralised valuation and calculationso disputes are a thing of the past,a centralised calculation of your riskand margin associated with thatand so on and so forth.So what we're trying to,what we are building and have builtwith some acquisitions as well is a centralised platformand centralising data, and out of that,centralised margin and collateral workflow,and out of that we can applya lot of our optimisation techniques to make these productsand assets that sit within our PTS infrastructuremuch more capital efficientand reducing that footprint that I referred to earlierterms of financial resource optimisation.So let's give a simple example around this.As I'm sure you can imagine,there are thousands upon thousands of counterparties here.But just in a very simplistic way,purely through the lens of capital at this point,not margin, you could overlay margin,we've developed a service called Smart Clearing.What is that? It's using the tools of Quantilewhere we can basically harvesta bunch of bilateral portfoliosand find optimised subsetsthat we can put through our processand into a clearing house,and reduce the capital consumption of those portfolios.So FX, not mandated for clearing,but there are some benefits,but you need to be very precise about what you bring inand what you leave out.So in this example,one bank has three positions,a bilateral position with bank A, positive 100,a bilateral position with bank B, minus 75,and a bilateral position with bank C, positive 50.When you are calculatingyour capital consumption under SA-CCR,glossary of terms to come at the end of thisto explain what that is,the gross risk will be 100 plus 75 plus 50which is your 225 by counterparty currency pair.That is then used as an input into your capital model.However if you take those tradesand submit them into clearingas they're selected through the optimisation process,the first thing we'll do is net those downand therefore the capital position will be 75.So already you get a reductionby going from bilateral to cleared.But secondly, when you put it into a clearing house,the clearing house, as I referred toin some of my opening remarks,attracts a different counterparty risk weightingrelative to bilateral,bilateral depending on the standing of the counter bodiesbetween 20 and 40.CCP is generally at 2%.So what you're seeing there,the same print of trades kept bilateraland subject to bilateral counterparty riskversus putting them into a clearing house,getting the benefit of netting from a capital standpointand the CCP risk rating,you're reducing by 90, 95% the capital footprintof those positions in your portfolio.It's a very simple examplebut hopefully illustrates to the powerof what we're building,and the point really isfundamentally we'd like you to clear.But if clearing isn't the right answeror if actually clearing attractable marginyou want to target capital,we can do that between our clearedand our uncleared services.So really think of the entire universe of productsand services we have as an entire solutions for Post Trade.To rattle through, we are doinga lot across the group as well.There is data coming from SwapClearfrom our credit business as well, from CDSClear,which is going into our FRTB fundamental reviewof the trading book product.So we've got connectivity there.Similarly our regulatory reporting business,historically we view it as Univista,is utilising data from our WorldCheck productwhich sits within Risk Intelligenceand also we're providing trade data,real-life trade data to enhanceand really improve the benchmark pricingthat we have in our fixed income products,the index products, FTSE.In Cap Markets, my responsibilities nowacross markets as well.We've got connectivity between the trading platformsand the clearing housesand bringing seamless execution into clearingbetween our NDF matching platform that we've launched,and there's some optimisation we're doing through FXalland Quantile as well.And then finally, a bit that we don't geta chance to talk aboutbut I think it's really important,the relationships that we have in Post Tradeare very senior withina lot of the major sell- side and buy-side firmsbecause of the nature of the business we're doing,systemically important counterparty risk management.Isabelle and I, as an example,I think we're between us across about 1/3,maybe 40% of the group'sstrategic accounts as exec sponsors.Leaning into those relationshipsto make sure we can bring the overall firmand making sure we're bringing linksto our data business, our index business,and Risk Intelligence as well.So it's not just about the relationshipswe have in the context of Post Trade & Markets,but it's leveraging that elevated relationship we haveto try and open doors for usto bring the broader group into those partnershipsand become ever-more important with those customers as well.To come towards the end,so what are we super excited about?There's been a lot we talked about.Post Trade Solutions you can hopefully see,we see that as a very big medium,and long-term, and near-term opportunity.Asia as a region is really hot for us,spending a lot of timeand investing a lot of money in making sure we haveproduct tailored to the local markets as they developand continue to grow as well.FMX, I'm sure there'll be some questions on this,but historically this was futures.We're going to take over the swaps market.Well, frankly the swaps market is alive and kicking,but actually we think there's some real good offsetsto do futures against the swaps portfolio.We've succeeded in taking a major sharein the European side on the CDS clearingand now expanding our network into the US,and we're starting to stepinto some of the digital asset clearingas well back end of this year into next year.So constantly doing new things,as well as expanding our existing,is probably the key message to take away from here.And to finish, to wrap up,we've hopefully explained to you in quite a quick pace,perhaps we can go quicker,how does clearing work?Why is it critical?But I think and I hope you can seewe've got some real strong foundations, real strong links,and trust with our customers,and a track record to prove it,but this is translated into growth.You can see that sustainable growthin the business organically,as well as now embellishing in the last yearor two with some sort of strategic acquisitionsthat we've brought in,but really continuing on that sort of organic journeyacross the entire derivatives and securities chain.Not just limited these days to clearing,but the other elements as well.And final, final, LSEG,a global business, multi-asset class.Post Trade, a global business, multi-asset class.Same customers and clients.Different personas perhaps in some of those firms,but we are constantly partnering with our customersand we're looking to extend that model across the groupso we can have a more integral partof their business and bring valueand bring success and growth to us as a group.So with that I'll hit pauseand hand back to Peregrinewho I believe will moderate the Q&A, Peregrine.- Fantastic, thank you both very much for that.We've got loads of questions,so let's see how many we can rattle through.Can I kick off with quite a broad one, it's anonymous,but can you talk a bit about the threats and challenges?Where might you face disruptioneither from new business modelsor new technology, for example?- Maybe I'll take that one, Peregrine.I think we're constantly scanningthe horizon for opportunities, but similarly threats.We're not in any way complacent.I think there's a lot saidabout disruptive new technologies and new capabilities,and we're certainly not tone deaf to that.I'll just sort of answer that very quickly.On the one hand, in clearing houses,heavy duty, high resilience, high regulatory scrutiny.Not necessarily the hotbed for trying out new things.These need to be super battle tested kind of areas.But with the creation of our Post Trade Solutions,we are able to embraceand do newer things quicker given they're less regulated.So I think there are,certainly if you're in the more settlement space,I think some of the newer technologiesand DLT, blockchain, et ceteraare very interesting in that space.But I'd also say look, we have AI is embeddedin a lot of our optimisation algorithms in Quantile.We are embracing these things.Perhaps we could do a better jobof being more public about them,but I'd say the biggest challenge we're facing right nowis actually the paceat which we're delivering new product serviceswhich are valued by customers,their ability to consume them.There is a challenge in terms of the streets,finite financial and human resources to be able to onboardand take these products and services.So in some ways I thinkthat's probably where our biggest challenge is.Less so some of those maybe medium term threats,but please be assured we are keeping a close eyeon looking where we can integrate these kind of elementsinto our offering as well.- Super, thank you, and then we've hadquite a lot in general on FMX,so I might just try and pull some of those together.One is a specific questionaround the regulatory status of LCH in the USwhen it comes to clearingUS treasury futures and SOFR futures,but perhaps more strategically a questionon the margin efficiencies that our participants gain,what the economic opportunity is for us,and how big of a strategic focus it is for us, thank you.- Do you want me to take that?- [Dan] Okay, yeah.- Okay, so first of all,from a regulatory perspective,we are fully registered with the CFTCwhich is one of our main regulators.We've been registered since 2001 actuallyas a clearing house derivativescleaning organisation, DCO, right.So there's also an MOU between the CFTCand the Bank of England.So we have all the authorisationsfrom a regulatory perspective to clear SOFR futures,but also US treasury futures.So just to be very clear about that.In terms of the margin efficiency,maybe I can quote a couple of figuresthat we've been working on with the teamwhen we were working on the concept of FMX.So it's around up to 80% of margin efficienciesfor US dollar futures versus dollar swaps,and it's up to 50% for dollar futuresversus 13 other currenciesand not dollar swaps, right.So it's extremely efficient,and it's one of the reasons why there is the interestand the level of interest that we have seenfrom the investors into FMX.- Super, thank you, I've got a questionfrom Bruce Hamilton at Morgan Stanley.Can you remind us of the capital intensity of the business?How much capital does LCH have to holdor as a protectionoffered by margin, default fund, et cetera?Maybe just unpack a bitof what we went on the slide please, Daniel.- Yeah, absolutely, thanks for the question, Bruce.Look, I don't want to gettoo geeky in numbers and detail here,but headline, take LCH limited as an example.We have two clearing houses, Paris and London.Limited is the preeminent One in this contextand we hold, I think it's in our public accounts,around a net capital holding of about £550 million.But to be very precise,only £91 million of that,that roughly £90 million is what we refer toas skin in the game, okay?The remainder of that is capitalwhich is calculated through a formula to be compliantwith the EMIR regulationthrough credit, market, and operational risk.Operational risk being about 75% of that,and then just sort of wind downand business capital that we have to hold.So when you look at the actual capital at riskrather than the traditional wind-down operational capital,it's about £90 million.And that skin in the game,just to be super clear, we refer to it at SITG,skin in the game, what is that?That is in the eventuality of a default,how much of our firm's capitalis put at the front of the waterfall?Going back to the sort of waterfall I referred to,the first thing that we take in a defaultof any counterparty is we use their initial marginthat they've posted and we've held.The second thing we will use is their default fundthat they've posted and we hold.The third thing we will then use is our skin in the gameor a portion of that,and then the fourth thing is the mutualised default fundand so on and so forth through that.To be super clear on that,that skin in the game is different by services,but that's the aggregate for LCH Limited.And just to be super, super clear,we have never ever used more than the initial marginof the defaulting firm themselves.Never mind their default fund contribution.Never mind our skin in the game.So we think of this as very highly protected.We think of thisas it's a relatively low intensity element of that,but it drives the right behaviours to make surewe're holding our risk standards to the absolute,the gold highest of high standards.And quite frankly, our customers,our members who are also neutralisersin the worst case scenarioencourage us to do the same as well.So at the end of the day,as I've often said,nobody wants to buy the world's cheapest parachute.So we like to ensure we have the most resilientand robust risk management methods here.So that hopefully that gives youa bit of an unpacking, Bruce,but any other questions, let me know.- And then I've got sort of three related questionsfrom Russell Quelch at Redburn Atlantic.So in the uncleared market,is this white spaceor are there other people that we are displacing?What level of engagement have we seenso far in Post Trade Solutions?And what will our pricing model beor what is it?- Maybe I'll take those if that's okay.So I think the uncleared marketis, to a large extent, white space.Now it's not to say there are no providers there.If we were to draw a picture of all the different firmsor people that were involved in this space,it ends up becoming a very dark black piece of paperbecause there's so many relatively important,but small elements around the whole piece.What we're offering and what we're bringingto the marketplace here is a single solutionwhere we can do all those different elements for you.So we are looking at,I'll use an example from earlier.Today in the bilateral or uncleared space,there is a problem with dispute resolution.I say my valuation is this.You say it's this.We have a dispute.It ages, we hold capital against it.In our model, there are no disputes.So there are some businesses, for example, in that spacemaking the dispute resolution process more efficient.What we're doing is removing the dispute resolution process.So our role and goal in this space is to either eliminateor materially rationalise a lot of these areas.So I think that's just one example,but there are many like that.So it's quite a busy space of interesting things.We think this is ripe for a sort of one solution around thisand some of it we'll eliminate.Level of engagement, just to give clarity,what we've done is we've createda Post Trade sales force here.So we're not going as LCH Limitedor X clear, Y clear, Z clear.We have one team.These are the same customers at the end of the dayand the same personas in those customers.So we've been integrating Quantile, Acadia,Post Trade Solutions into the overall sales offeringand we're already seeing really good cross-sell,upsell for want of a better phrase,where the same customers who are using us on one productare looking to use us on another and another and another.So the engagement's really good.I will just stress we are open access.We do also work with other providers in the space as well,so we're not in any way exclusive,but tying these things a little bit more closely togetheris certainly helping in our dialoguewith customers with some success.And then finally, the pricing model.I'd say we're in early stages around this'cause we've sort of been bringing these firms in,but there is a bit of a blend at this point.Some are more all-you-can-eat-type thingsakin to SwapClear on the member sideas we look to sort of gain traction with customersand then some are more per diem, per ticket,or per transaction, or per message around it.So there's no simple answer to that question.Over time, we'll probably bring more alignment to that,but we see a lot of opportunity for usto grow the business in this spaceand there's no shortage of interest.And I think there was another questionin terms of client sort of sites,just to be clear as well.These are not new businesses with no customers.Quantile was connected, had customers.Acadia was connected, it had 5,000 customersacross multiple asset classes.So it's not starting from scratch.This is taking established businesses, integrating,and putting one packaged offer to the customers.- Super, question on SwapClear volumes from Andrew Coombs.What do you perceive to bethe best rate environment for SwapClear volumes?One would assume higher rates and a steep curve,but you've seen volume growth across the last cycle.- Yeah, I mean, for me,it's not dependent on the rate cycle.It's dependent on the underlying market volatility really,so it's relatively immuneto whether rates are going up or down,but it's not immune in a good wayto the way that rates are going up or down.So there's a bit of uncertainty around the monetary policy.Like we saw, for example,going into the last Fed adjustment,then it creates a huge amountof flurry of activity in the market,and that heightens the volatilityand more trades coming into clearing.So I think that's more the way that I think about itthan the link to whether the rates are going up or down.And that's why we saw that the businesshas continued to growreally pretty much whatever the rates environment is.There's a question that I'll take as well, Peregrine,if you don't mindwhich was the one around EMIRbecause I've seen it come up a couple of timesand it relates to SwapClear as well.So just to say that first of all,the level one text has been issued.We're waiting for level two.ESMA is working on it,so we don't quite know yet what the detailed implementationis going to look like.However it's such a changecompared to what we were looking at a few years ago.It's now not about migrating trades to the EU.It's about creating a sort of fallback,an operational account which could be usedin the event of a problem with SwapClear.And there's very few tradesthat are going to have to go through the other CCPor one of the other CCPs,and the reality is that in all our calculations,and I can't share,I don't think they're going to be happyif I were to share exactly the impact,but the impact is very small,extremely marginal for us.- Thank you very much.Just taking these in order,I think some of them can be quite quick.So Johannes at HSBC askingsettlement and custody is far more impactedby change T+1 in the US,potentially in UK in some years,but what are the implications of T+1 for clearing?- De minimis is probably the short answer to that.I mean, really that's really shorteningthe window on settlementwhere really pre-settlement on a lot of what we do.So frankly de minimis is our view on the impact there.- And also we're already done,we're already at T+1effectively on the security side of the market,on the UK side, for example.We're already at T+1.We don't call it T+1,but the way that the market functions is T+1.- And then on pricing power,Ryan at Visualize is asking can you discusshow you think about pricing power in the business,both frequency and magnitude,and how the minority member ownershipmay or may not limit your ability to raise price?I guess we could throw in OTCDN in that as well.- Yeah, great question, I thinkwe take a medium to long-term view on everything we do.I refer to Post Trade Solutionswho are the main participantsand players in that space?No surprise, it's the same main participantsthat we see in the clear derivatives marketplace.So the business model and the way we operate,do we have pricing power?Yes, we do, do we increase prices from time to time?Yes, we do, but the predominant growth of the businesshas been through working in conjunction with our partners,building product that delivers value,and pricing and charging for that fairly.And then again, the next thingand the next thing and next thing.So whilst there's always a,this question comes up time and time againis could you not put prices up?I think the impact of that could stymiea lot of our future growthand future opportunities as well.So again, we aren't deaf, we're not dead to this.We do increase our prices steadily over time,but it's also with a mindon what are the next things we're building,who are the networks that we want to build,what are the participants there?So I think it's being sensibleand cautious around how we do these things.The answer is not... to not increase prices is the wrong answer,but also to jack prices is the wrong answer.This is more about sensible and steadyand demonstrating we're delivering value as we go,but also we have a mind's eyeon what are the next opportunitiesand who are the main participants?And it's generally the same big players on the buyand the sell-sideon the derivatives portfolio of securities.- I'd just say if your question isn't being read out,it's because I think we covered it in the presentationso I'm trying to pick out those oneswe didn't touch on at all.So this is from Ben Bathurst at RBC.Please can you give more detail on the reasonswhy you are confident that volatility will remain elevated,helping you to grow the activity levels at SwapClear?And secondly, how should we think about cost growthfor the division looking forwards?There's been some EBITDA margin compression related to M&A,but would you expect that to expandor you're going to have to invest to grow PTS?- Do you want to take the first one, Isabelle?- Yeah, I'll start on the first one.Look, I don't have a crystal ball,so I wish I did.But our assumptions is that it remains elevatedbecause there are significant geopolitics at play here.Whether in the US, on the EU side,and global in the world,that makes the market pretty uncertain.And uncertainty creates volatility.That's sort of a little bit of an answer.The second one is again, as I said,every sort of unclear change to monetary policywhich is bound to happenbecause again, we are in a downward cycleas you rightly pointed out,but not necessarily with 100% alignmentfrom all the main central banks.Not 100% alignment at the same timefrom all the central banks to the same quantumand signal to the market in advance in the right way.So that again, creates significant volatilityas we have seen.Away from volatility, the fact that sovereign debt continues,and debt generally continues to growand the issues creates more hedging opportunities,and so I mean, I'm quite relaxedfor the potential for SwapClear for sure.- Maybe if I take the second questionaround you know cost growth of the division looking forwardsand sort of commitment to EBITDA targetsand so on or margin compression.Thanks for the question, Ben.I have a very religious focus on this,this isn't just about top line growth.It's about bottom right-hand cornerof the spreadsheet as welland hopefully you can see we havea pretty good long-term trend in managing EBITDAto 50% plus levels in this division and higher.But we don't want to be doing thatat the behest of investment,so there's going to be some peaks and troughs within that.But our intention is to continueto get back to those kind of levels,but we're making investments nowfor the future growth of the business.So they will havea slightly dilutive effect in the short-term,but please be very confident that weare laser-focused on extracting the synergiesas we put these things together,but we also need to invest for growth.So it's getting that balance rightin the context of the wider group targetsas well obviously as we lookto have margin expansion as well.So very focused there,but also we need to invest to growboth from a capital expenditure investment,but also from a supporting that and opex standpoint.But we're very confident that these things,seeing our track record as well,there's a bit of a lag to these things.But we're seeing all the right leading indicatorsto give us confidencethat we're investing in the right things.- Great question herefrom Gregory Simpson at BNP Paribas.Can you talk about the roleand potential of data in Post Trade?For instance, does LCH have a lot of data that isn'tand could be monetised?- Maybe I'll jump in on that, thanks, Gregory.There is data in Post Trade.I would caution a little around some of the data.The value of datais primarily higher at the point of execution,would be a general themeand trend I would see certainly in the market space.So when we think about our exchangesor our trading platforms in FX, for example, or Tradeweb,you see a perhaps higher intrinsic valuein that data at the point of trade.Post trade data, there's probably two real types of that.One is market dataand I don't think we have any particular niche in that area.We're really just doing collateral valuationrather than pricing for trade,but what we do have is a lot of trade data.And so data that is based on tradesthat have been transacted.So when you think about reference rates as an example,the shift away from quoted rates to transacted ratesand things along those lines,we're able to plumb these rates into,I mentioned earlier to FTSE Russelland fixed income indicesinto the fundamental review of the trading book.So we think there is a sort of second order opportunityin these where we're leveraging the infrastructureof the group of making connectivity,but we haven't unearthed a major data opportunity.These are sort of very specifickind of use cases that we have,but we've got dedicated folks within this spaceand Isabelle and other colleagues' teamsto try and extract what we're working, most importantly,in super close connectivity with our friendsin Data & Analytics here.So we've not cracked that yet,but I just cautionit's probably more about trade data than market dataand how can we really leverage thatto create better insights?- Thank you, anonymous question,could you please help add dimensionto the biggest growth opportunity?Is it Uncleared or FX,which is the most likely to havethe biggest medium-term impactthe overall Post Trade growth rate?- We may have a different view, Isabelle.What do you say?- I was about to say for me, it's FXand maybe Dan has a view on the uncleared.So let me start maybe on FX.For FX, the opportunity is very largebecause the target addressable market,first of all, is absolutely huge.And this is one of the biggest markets in the worldfrom a financial product perspective.And the more we hearabout the prime brokerage activities of the banks,the more we hear that those activitiesare not necessarily 100% well-pricedand well-assessed from a risk perspective.So there's more and more shift away from PB into clearingand as we grow our offering,it sort of makes sensebecause we drive ever-more margin efficiencythrough the increase of the offeringof the various underlying from an FX standpoint.So for me, it's a significant opportunityover the next few years.- If I build on that,what I'd love people to take away from thisis we think the opportunity is in FX,some of it will be cleared,some of it will be uncleared,and I could say the same in other asset classes.FX is material in its size,hence it's the biggest.Historically our path was clearing is the answer.Where we are now is clearingis a very good answer to some of the problems,but not the answer to all of the problems.And actually some of our Post Trade Solutions elementsare quite helpful as well in being more capital efficient.So we think FX as an asset class is a big growth area.I think some will land in the clearing business,some will land in the unclearedor Post Trade Solutions business.And I think that's the way you should think about itis when how we're talking to our customers.It's we have more than one answer to the problem.And that's what's really resonatingwith customers around this.It's some things are capital solutions outside of clearing,some of them are capitaland margin solutions inside of clearing.So I'm hopefully it's not a cop out.I actually think the answer is FX across the two,rather than one or the other.It'd be better than me telling youwhere the land lies on that,but definitely a big opportunity.- And I think, unless this is quick,this may be the last question.We might just squeeze in two.Anonymous again, what is the differencebetween Quantile and Acadia,and how do they compete with OSTTRA?- Great, if you think about Quantile primarily,about credit, market, capital, risk optimisation.So think of it as coming from the schoolof resource management and resource optimisation.Think about Acadia, think of thatas more of a collateral messagingand collateral processing backbonefor the uncleared derivatives market.The two things are interconnected,hence we're putting together with SwapAgentand TradeAgent to make a combined capability.But the one thing Quantile can do,it can straddle between cleared and uncleared.Acadia is very much about the uncleared marginand the uncleared collateral space.So that's the sort of fundamental differencebetween the two, they are complimentary, not competing,and they're in a different space but similar.I mentioned earlier open access.We work closely with TriOptima as well.I think at last look,about 35% of the compression that we seein SwapClear is through Quantile.The remainder is predominantly TriOptima,to answer that question with OSTTRA.I think there are some similar tools in OSTTRAto some of the ones we have,but I think Acadiais relatively unique in what it does as well.So it's probably more similarities between Quantileand some of the OSTTRA tools,but perhaps less so on the Acadia tools.- Super, and I'm just looking for one more to finish with.I think a lot of these are duplications from previously.Here's a good question again.As more gross value movesfrom the unclear to the cleared space,will there be a degree of cannibalisationof the TAM for LCH?Maybe we'll finish with that.- Can you say that question again?I didn't see that one.- Sure, as more gross value movesfrom the uncleared to the cleared space,will there be a degree of cannibalisationof the TAM for LCH?- Sure, I see it the same way.I think as if things move from unclear to cleared,I'd say the TAM will increase for LCH,but the TAM for Post Trade Solutions perhaps will reduce,but the TAM for Post Trade remains the same.And I think that's the key message hereis it can go this way, it can go that way,but our preference is it comes our way overall.Depending on the problem we're trying to solve,clearing may be the answer.Uncleared may be the answer,but I don't think there's a cannibalisation per se.It's more of a where does it landas opposed to does it disappear, it needs itself.- And I think it's important to rememberthat there's a lot that is uncleared and unoptimised.So if everything was completely cleared,completely optimised everywhere,then yes, of course, there would bean element of optimisation.But it's not, and by far.So for us, there's an increaseof target available model market overallbecause there's more that's going to comeinto either clearing or optimisation on the PTS side.For sure, and it's an ever-increasing drive.- Yeah, just to finish and build on that,I think with what we're building in Post Trade Solutions,you're introducing a degree of uniformity to whatis a very sort of heterogeneous kind of bilateral space.You're bringing a bit more homogeneity perhaps to process,rule book, standard, messaging, and so on.That puts us in a position that over time,that would be a good proving groundwhere eventually perhaps things could move towards clearing.So this is again, where it's more complimentarythan necessarily cannibalising.The more standardised process, collateral agreements,rules and records, and so on we can doin the uncleared space,the more ripe it becomes perhaps over time for clearingwith the ability to toggle between clearedand uncleared using the tools we've built.That's probably the best way to think about it.- And I think we're done.So Daniel, any closing words for our attendees?- Well, Peregrine, thanks for organisingand Isabelle for joining,but I think to the attendees,really appreciate you spending the time.I know you're super busy people.Hopefully we've created a bit more clarityaround what we do, why we're excited,why we're going to keep growing and expanding,and how we're bringing value to the customers.So I'm always happy to engage through these,but if there's a desire to go deeper,Isabelle and myself will always make ourselves availableand Peregrine will always know where to find us.So thank you for your timeand please if there are any follow up questions,please send them through.We'd be happy to answer them for you, thank you.- Bye bye. - [Dan] Bye.
