Spanish repo service clears 130 bln euros in 1st month

Spanish banks have embraced a newly-launched repo clearing service, pushing notional volumes to over 130 billion euros in the first month, clearing house LCH.Clearnet said on Thursday.

The clearing service, launched on Aug. 9 by LCH.Clearnet, for the first time allows banks to exchange Spanish sovereign bonds in return for short-term funding while avoiding the need to deal directly - and more expensively - with other banks.

Repo transactions - normally conducted bilaterally involving the legal exchange of collateral - had become a costly source of funding for embattled Spanish banks as a result of concerns over the health of Spain's financial sector.

Central counterparty clearing allows banks to remain anonymous, with the clearing house assuming the clearing members' counterparty risk. Interdealer broker ICAP said last week that centrally cleared transactions already accounted for a third of Spanish nominal repo volumes running through its BrokerTec system.