LCH. Clearnet plans to take gold as collateral

10 October 2011

LCH. Clearnet is to accept gold as collateral in a move which shows banks are looking for alternatives to traditional sources such as cash or bonds.

In a statement, LCH. Clearnet explained it would be extending its range of collateral types from the end of October and will accept the gold in 400 troy ounce bars.

David Farrar, director at LCH.Clearnet said “Market participants want greater choice when it comes to assets that can be used as collateral.

“Gold is ideal; as an asset it typically performs well in times of financial stress, remains liquid and has a well established pricing mechanism.”

Members of the exchange which have signed up to clear over-the-counter (OTC) gold bullion and gold contracts on the Hong Kong Mercantile Exchange will be able to utilise this service.

The World Gold Council are supportive of the initiative - they provided evidence to the Basel Committee to support the claim that gold should be included in the "Tier 1" assets of banks by regulators.

By Jim Ottewill

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