Clearing Member PPS Contingency Arrangements

Report date

Circular No.

LCH Circular No 3596


11th March 2015


All LCHClearnet Ltd Members


Dear Member

LCH.Clearnet Ltd (LCH.Clearnet) conducted a review at the end of 2014 on the PPS contingency arrangements in place across all its Clearing Members (including FCM Clearing Members). From this review LCH.Clearnet has refined the choices to three core options for contingency –

  • Direct funding of cash into LCH.Clearnet concentration account
  • Deliver non-cash collateral
  • Use an alternative PPS bank(s)

The LCH.Clearnet Procedures and FCM Procedures state that Clearing Members must ensure they have PPS contingency arrangements in place to ensure that margin obligations can continue to be met in the event of a failure of their nominated PPS bank(s). Evidence of these arrangements may be requested from time to time by LCH.Clearnet.

Accordingly LCH.Clearnet will be conducting a test of all Clearing Members' PPS contingency arrangements, starting in May 2015 and completing in September 2015. The testing will be done in one of the three major call currencies that LCH.Clearnet accepts as cash collateral – EUR, GBP and USD, with the test scenario aiming to simulate an unconfirmed intra-day margin call due to an issue with the clearing member's PPS Bank.

Subject to regulatory approval, LCH.Clearnet is also planning to make a change to the LCH.Clearnet rulebook(s) to state that Clearing Members will be required, at the Clearing House's request, to demonstrate that they have suitable contingency PPS arrangements in place. This will be applicable across both UK and US PPS arrangements.

Each LCH.Clearnet Clearing Member will be contacted individually to arrange the date for the testing. Participation from all clearing members will be required.
For further information, please contact the below:

Nick McMillan
Operations and Client Services Manager

Laurence Jones
UK Head of Collateral Operations