Changes to the LCH Limited (“LCH”) Rulebook – Rulebook Committee of 07 September 2017

Report date
Summary

Circular No.

LCH Circular No 3887

Date:

11th September 2017

To:

All LCH Ltd members

Body

Following the Rule Change Committee of 7 September 2017, LCH is making the following proposed rulebook changes available on its secure website under the folder “Rulebook”.

Rulebook Changes - Consultation Period

The following rulebook changes are being made available for a consultation period of 4 weeks.

Title

 Services Impacted

MIFIR

The following regulations (collectively, the MIFIR Regulations) will be effective on and from 3 January 2018:

  • Regulation (EU) No. 600/2014 (MIFIR);

  • Commission Delegated Regulation (EU) 2017/582 (RTS 26); and

  • Draft Regulatory Technical Standards on Indirect Clearing Arrangements under EMIR and MIFIR dated 26 May 2016 (Indirect Clearing Arrangement RTS).

The rulebook changes are predominantly a result of the MIFIR Regulations, as further outlined below under the heading “Rulebook Changes – MIFIR Regulations – Key Categories of Change”.

Conforming Changes

The remainder of the rulebook changes are to conform certain parts of the rulebook with other parts of the rulebook, and to ensure consistent use of definitions and terminology.

 SwapClear

 ForexClear

 EquityClear

 LSE

 Derivatives Markets

 Listed Interest Rates

 FCM

 

Clearing members that wish to comment on the proposed rulebook changes should email rulebook@lch.com. If you have any general questions on rulebook changes, please contact your usual LCH contact. Please note that all rulebook changes remain subject to regulatory approval and internal LCH risk approval.

Rulebook Changes – MIFIR Regulations - Key Categories of Change

The amendments to the rulebook required as a result of the MIFIR Regulations divide into two main categories, as outlined below.

  1. Indirect Accounts

The amendments introduce two new client accounts within the SwapClear, Listed Interest Rates, ForexClear, EquityClear and LSE Derivatives Markets services. Broadly, these accounts operate as described below. However, please see the proposed rulebook changes for full details as to their operation.

(a) Indirect Net Account

This is a client account which a clearing member opens with LCH in respect of one or more clients who are, in turn, each providing clearing services to their indirect clients. LCH does not know the identity of the direct clients or the indirect clients. The account (i) reflects “omnibus client segregation” under article 39(2) of Regulation (EU) No. 648/2012 (EMIR), and (ii) is an account described under article 4(4)(a) within the Indirect Clearing Arrangements RTS. The account operates in a very similar way to LCH’s existing Non-Identified Client Omnibus Net Segregated Account.

(b) Indirect Gross Account

This is a client account which a clearing member opens with LCH in respect of one client who is, in turn, providing clearing services to its indirect clients. LCH knows the identity of the direct client, but does not know the identity of any of the indirect clients. The account (i) reflects “individual client segregation” under article 39(3) of EMIR, and (ii) is an account described under article 4(4)(b) within the Indirect Clearing Arrangements RTS. The account operates in a very similar way to LCH’s existing Individual Segregated Account, but with certain characteristics resulting from the Indirect Clearing Arrangements RTS. For example, LCH will determine margin requirements on a “gross” basis for this account, meaning that such requirements will be determined, separately, in respect of the positions referable to a particular indirect client (rather than on a net basis across all positions registered to the account).

  1. RTS 26

RTS 26 is designed to make the clearing process faster and better. The rulebook has been amended to reflect, and ensure LCH’s compliance with, articles 3(4), 3(5), 4(2), 4(3) and 4(5) of RTS 26.

In addition, the rulebook has been amended to satisfy the condition under article 2(1)(b) of RTS 26 in relation to those services which offer clearing on an “open offer” basis (see Regulation 68 (EquityClear Service), Regulation 77 (LSE Derivatives Markets Service) and Regulation 97 (Listed Interest Rates Service)).