Approved Compression Service Providers – Consultation regarding allocation of ACSP Compression Cycles

Consultation

LCH is committed to supporting client choice by promoting competition and driving compression volumes across the interest rate swaps market, while also upholding the highest levels of transparency, efficiency and safety for reducing market risk. 

Ten months since launching the LCH compression model, LCH is consulting with its clearing members regarding how they would like it to allocate ACSP Compression Cycles to ACSPs.  The focus of this consultation is how runs should be allocated when more than one ACSP requests to perform an ACSP Compression Cycle in the same currency on the same day, something which has not previously been possible due to operational considerations.

Following continued efforts by LCH to increase capacity, LCH is pleased to announce that it will soon be able to offer multiple ACSP Compression Cycles in the same currency and on the same day.

The current process

Under the current process, ACSPs submit the dates on which they wish to perform an ACSP Compression Cycle for a given currency in the upcoming quarter.  Where more than one ACSP requests to perform an ACSP Compression Cycle in the same currency on the same date then LCH will request the ACSPs to inform LCH of the number of entities (members and clients) signed up to their ACSP Compression Cycle. The ACSP with the most entities is then able to perform their requested ACSP Compression Cycle and LCH works with the other ACSP[s] to find an alternative date.

LCH is consulting on a change to this methodology.  If implemented, this change will allow multiple ACSPs to perform an ACSP Compression Cycle in the same currency on the same day.

Proposal:

ACSPs will submit their requests for the upcoming quarter.  Should two or more ACSPs wish to perform an ACSP Compression Cycle in the same currency on the same day then LCH will support all of the cycles but, for operational reasons, may have to limit the number of events (each termination and new trade being an event) that each ACSP can perform in its ACSP Compression Cycle.  In order to encourage the maximum amount of compression and in order to ensure a competitive process, events will be allocated based on the number of events effected in an ACSP’s previous Compression Cycles in the currency that the relevant ACSPs have performed or based on the anticipated number of events in a given ACSP Compression Cycle.

LCH is planning to implement these changes prior to the end of Q3 2018 unless there is significant clearing member objection to the proposal. Clearing members are therefore kindly requested to review these proposals and provide feedback to Paul.Wilson@LCH.com by 5th September 2018. Clearing members that would like additional time to consider the proposal should contact the Clearing House. The contents of clearing member feedback will be kept confidential.

Changes to the LCH compression model remain subject to regulatory review or approval.

Terms used herein have the meaning assigned in the LCH rulebook (available here).