Dirty Pricing

Dear Member,

LCH Limited (“LCH”) has long supported its clearing members in providing debt securities as collateral to LCH for the purpose of covering initial margin obligations. Until now, LCH has priced these securities at their clean market value. In response to feedback from clearing members, LCH will from Monday 12 June 2017 start valuing securities inclusive of accrued interest on such securities (“Dirty Pricing”).

This change in valuation methodology will apply to all securities lodged at LCH, for all clearing members (including FCM clearing members), across all account types (including house accounts and client accounts) and whether such securities are delivered bilaterally or via a triparty service provider. The change will be effective on and from Monday 12 June 2017.

Securities Provided via a Triparty Service Provider

Clearing members that provide securities collateral via a triparty service provider will notice these related changes:

Clearstream Banking S.A. (“Clearstream”) Participants

LCH will update the LCH eligibility schedule which applies to Clearstream triparty transactions to reflect the change to Dirty Pricing with effect on and from Monday 12 June 2017.

Euroclear Bank SA/NV (“Euroclear Bank”) Participants

With effect on and from Monday 12 June 2017:

1. Euroclear Bank, using its “auto-select” process, will seek to substitute each security paying a coupon out of the relevant triparty transaction and back to the relevant clearing member on the record date for such security (regardless of whether the coupon is subject to tax); and
2. Where the substitution of a security as outlined in 1 above is not successful, coupons will be credited to, and held within, LCH’s account at Euroclear Bank.

Euroclear Bank will only transfer such coupons out of LCH’s account at Euroclear Bank in accordance with an instruction received from LCH.

Euroclear Bank will facilitate this new process through two additions to the “Exceptions” section of LCH’s global collateral profile (i.e. Annex I and II)

For the avoidance of doubt, there are no changes to the way coupons are processed (a) within a Clearstream triparty transaction, or (b) in respect of clearing members who do not use a triparty service provider.

If you have any questions in relation to these changes, please contact collateral.services@lch.com

Kind regards,

LCH