Isabelle Girolami has been CEO of LCH Ltd. since 1 November 2019. She has since had to deal with a global pandemic requiring employees to work from home, the debate over whether UK clearinghouses will be granted equivalence by the European Union following the country’s departure from the European Union and helping the industry prepare for the transition from Libor. Shanny Basar reports.
Girolami said there were several aspects that attracted her to join the clearing business of the London Stock Exchange Group.
“There is a really strong leadership at LCH and LSEG, and the prospect of joining the best clearing house and a team that is the best at what it does, was very appealing,” she added. “I also wanted to get my teeth into a real CEO job: LCH Ltd is a heavily regulated entity with an independent board.”
She is very proud of the way the team has collectively managed through the pandemic and described the transition to working from home as seamless.
“We have managed to work through a period of really intense volatility with huge resilience,” she added. “We are going to have a hybrid model and we will have to manage that transition and make sure it is organised properly. So that is going to be the next challenge.”
The first lesson LCH learned from Covid-19 is that the business can work effectively remotely, and the pandemic has accelerated the deployment of some technologies, such as video conferencing. “We have become more resilient as a team and in a strange way I think we are closer than we were a year ago,” said Girolami.
Before joining LCH, Girolami was Deputy CEO of the Corporate and Investment Banking Business at Crédit Agricole. She had worked at the French bank since 2015, initially as Global Head of Financial Markets. Her appointment followed the decision by Martin Pluves to step down as CEO of LCH Ltd to pursue other opportunities. After a career in global markets, Girolami has adapted to a different rhythm at LCH.
“For many businesses in financial markets there is a lot of focus on daily revenue and specific trades, whereas at LCH we place a lot of value on establishing a strong connection with a client or member,” she said. “There is a lot of focus and energy dedicated to developing long-term relationships and strategy.”
The biggest surprise has been the intensity of the work and the amount of reading to get through. “It is a very different decision-making process to running a markets business in a bank, for example,” Girolami added.
In addition, she has come to really understand what it means to be systemically important in terms of the responsibility, the scrutiny and the depth of relationships with regulators. One of the biggest regulatory issues since Brexit is whether LCH will be granted equivalence by the European Union, allowing it to clear derivatives for EU financial institutions on the same basis as EU CCPs.
There has been a marked increase in the amount of Euro derivatives executing on Swap Execution Facilities in the US this year according to Clarus Financial Technology. The derivatives analytics provider said this was a result of Brexit, as the US has benefitted from equivalence for both UK and European counterparties. Girolami said the implementation of the EU’s Derivatives Trading Obligation has resulted in some interest rate swap trading shifting to New York and venues in the EU, but LCH has not seen any change in activity from a clearing perspective.
She continued that the debate on equivalence for CCPs is complicated but LCH has a global offering and strong relationships with customers.
“Forcing part of a global market to clear in a separated, smaller pool of liquidity would drive up risks and be costly for the banks as it is less efficient to operate away from the main pool of liquidity,” she said. “Only permitting European banks to have access to one local CCP may put them at a disadvantage to other global players.”
In addition, constraining global markets creates inefficiencies and increases risk and costs. LCH wants to retain choice for clients and believes that open access is in their interests and the interest of the financial community at large.
Girolami said: “LCH has a lot of engagement with the market and the interesting thing is that customers consistently give us feedback that they want to continue to have the choice of CCP access. We are reasonably optimistic that reason will prevail and decisions will be made based on the benefits to the market as a whole.”
Another regulatory initiative is the transition away from using the London Interbank Offer Rate (Libor). After the financial crisis there were a series of scandals regarding banks manipulating their submissions for setting benchmarks across asset classes, which led to a lack of confidence and threatened participation in related markets. As a result, regulators have increased their supervision of benchmarks and want to move to risk-free, reference rates based on transactions, so they are harder to manipulate and more representative of the market. The UK has chosen Sonia as its risk-free rate while the US Alternative Reference Rates Committee (ARRC) has selected SOFR to replace US dollar Libor, although other new US benchmarks are also being created.
Girolami said the cleared swaps business is ready for the Libor transition, especially since the regulators have made very helpful announcements that give clear end dates, and LCH already clears products in the new risk-free reference rates.
In March this year the UK Financial Conduct Authority (FCA) confirmed that Libor settings will either cease to be provided by any administrator or no longer be representative immediately after 31 December 2021 for all sterling, euro, Swiss franc and Japanese yen settings, and the one-week and two-month US dollar settings. The remaining US dollar settings will end immediately after 30 June 2023.
At the end of this year LCH will have compensated conversions of the Libor contracts into the corresponding RFRs. For example, sterling Libor trades will be converted around 18 December just before the rate ceases.
“We consulted with the industry on converting rather than using the fallbacks because, at some point, you have got to just bite the bullet,” added Girolami. “We will have a set of reports that simulate the conversion process, and the compensation amounts to be exchanged so clients can see what the exact process is going to be for them.”
LCH has been working with members and clients for the last few years on the Libor transition but Girolami said it is still going to be a lot of work, especially in complex areas such as loans and mortgages.
Clearing foreign exchange is a potential growth area. LCH has appointed James Pearson as Head of ForexClear, effective 1 June 2021. Based in London, Pearson will be responsible for LCH’s FX derivatives clearing service reporting to Girolami. He has worked in FX for more than 20 years including as Global Head of FX Trading at RBS, Global Head of G10 FX Spot Trading & EMEA Head of Emerging Markets FX at Nomura and Lehman Brothers.
ForexClear cleared a total of $19.1 trillion in 2020. In January this year ForexClear began clearing non-deliverable options, adding to its existing offering of non-deliverable FX forwards, deliverable FX options and deliverable FX forwards.
However, while regulators have mandated clearing of interest rate swaps, there is no such mandate in FX.
“As a result, the value of clearing has to be very compelling from an optimisation and capital efficiency perspective,” said Girolami. “We are delighted to have appointed James as the new Head of ForexClear.”
Asia is another potential growth area, but Girolami explained that growth will be over the long-term due to the fragmented nature of the market and the continued trend in the region for lending activity, rather capital markets.
“As part of LSEG, we now have the weight of Refinitiv in Asia which has a strong presence in the region,” she added. “In fact, almost half of LSEG’s employees are based in Asia. While not everyone is a clearing specialist, we now have a truly global presence”
Girolami has spent time in Asia. Prior to Crédit Agricole, she spent seven years at Standard Chartered Bank in London and Singapore, latterly serving as Co-Head of the Wholesale Bank ASEAN and Head of Financial Markets ASEAN.
Daniel Maguire, CEO at LCH Group, said at the time of her appointment that Girolami is a proven leader who brings extensive experience in managing high calibre global teams operating across a number of asset classes. Maguire added: “She is well-known in the financial markets and has an outstanding track record in Europe, in addition to significant experience in Asia.”
LCH is also studying the cryptocurrency and digital assets space as they evolve.
Girolami believes that if people want to progress they have to take personal career risks and have to be courageous.
“This may be changing jobs, location and being out of your comfort zone until you learn to get back on your feet,” she added. “There is a cliché that men are always more able to take risks in their careers than women, but I don't think that needs to be the case, even for women with children.”
She also believes that working in some parts of the finance industry is actually really good for women with children. For example, in financial markets there is an established routine with days that are very clear in terms of the times that start and finish.
“I raised two children when I was working in markets,” she added. “It was really hard but it worked.”
However, she also said the financial industry needs to be proactive in recruiting females and retaining them so employers need to give people as much flexibility as possible.
“Women typically take a career break when they have children, and often it's really difficult for them to come back to work, said Girolami. “It’s something that we can do at LCH, but it may be a bit more difficult for some businesses.”
Her advice to other women is to not be afraid to go into finance, even in businesses that are traditionally more male dominated, such as trading.
Girolami said: “A head trader once told me that he was deliberately trying to recruit more women, because he thought they would bring a little bit less emotion to the role. He said a number of studies have shown that when markets are very stressed, women tend to be very calm in the heat of battle.”
In addition she advised that women should experiment with different roles and should not think that they are ‘stuck’ in a given role or on a given path - if they are not comfortable where they are, they should take risks.
“There is a relatively strong representation of women at LCH,” she added.” There is a drive for increased diversity of all kinds. For every role we actively seek out credible diverse candidates.”
Over the next year her first priority, as always, is the commercial engagement with clients and members.
“Another key objective is to continue to drive growth at ForexClear, under James’s leadership,” she said. “Furthermore, managing the resilience of the CCP is at the core of what we do and we must ensure we continue to be a beacon of stability in the market."
©Markets Media Europe 2021
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