LSE clearing houses not to up margin call on Italian debt after DBRS move

MILAN (Reuters) - The clearing houses of the London Stock Exchange will not raise the cost of using Italian bonds to raise funds despite the downgrade of Italy by credit agency DBRS, an LSE spokesman said. Banks use government bonds as collateral to access cash in the repurchase (repo) market, in which a handful of clearing houses play a vital role, assuming lending risks to provide institutions with the cash. Clearing houses collect cash in form of margin on individual trades, which they hold centrally to refund members left out of pocket in the event of a default. "DBRS' decision does not change anything for both the London Clearing House and Cassa di Compensazione e Garanzia," a spokesman for the London Stock Exchange told Reuters. Canadian ratings agency DBRS on Friday cut Italy's sovereign credit rating to BBB (high) from A (low), raising the haircuts that the European Central Bank apply when banks use Italian sovereign bonds as collateral to borrow money. In a note to clients, fixed income analysts at UniCredit had said earlier on Monday that the London Clearing House could adjust its own haircuts following the DBRS downgrade. (Reporting by Luca Trogni; writing by Francesca Landini; editing by Agnieszka Flak)