Euro Short Term Rate (€STR) Rate Change Notice
LCH Circular No 4102
20 July 2020
SwapClear Clearing Members
Dear SwapClear Clearing Member,
This Circular constitutes a Rate Change Notice pursuant to paragraph 1.12 of Section 2C of the Procedures and paragraph 3.5.1 of the FCM Procedures of LCH Limited (LCH).
On 27 July 2020 (the “Rate Change Effective Date”), LCH will replace EUR EONIA with €STR for the purposes of: (i) calculating Price Alignment Interest; (ii) calculating Price Alignment Amount; and (iii) constructing the Clearing House’s zero coupon yield curves for EUR. This change will apply to all EUR denominated SwapClear Contracts (the “Impacted SwapClear Contracts” or “Impacted FCM SwapClear Contracts”, as applicable). EUR EONIA will continue to apply for the purposes of discounting future cash flows until the end of the Business Day on 24 July 2020. Compensation amounts will be calculated based on the EUR denominated SwapClear Contracts registered with LCH at the end of the Business Day on 24 July 2020 (the “€STR Calculation Date”). A Cash Compensation Contract will be registered in each relevant account on 27 July 2020 for settlement on 28 July 2020. Please note and make your clients aware that Portfolio Transfers and other Bulk Events will not be permitted on 24 July 2020.
Either the ‘SwapClear SCM Service – Rate Change Annex – Euro Short Term Rate (€STR)’ or the ‘SwapClear FCM Service – Rate Change Annex – Euro Short Term Rate (€STR)’ of the Rulebook or FCM Rulebook will apply with respect to the rate change, depending upon whether the impacted clearing member is an SCM or an FCM Clearing Member. A PDF version of the Annex is available in the ‘ESTR Annexes’ folder of the secure area (available here) for onward distribution to clients.
LCH plans to report the Cash Compensation Contracts in accordance with its usual processes. LCH is making indicative compensation amounts available daily on Report 315, allowing Clearing Members and their clients to see the amount of theoretical compensation that would apply to an existing portfolio of SwapClear Contracts on a given day.
Please contact your usual LCH representative if you have any questions.
Terms used herein have the meaning assigned to them in the Rulebook or FCM Rulebook (as applicable). References to a SwapClear Clearing Member or a SwapClear Contract should be interpreted to include an FCM Clearing Member and an FCM SwapClear Contract. The LCH Rulebooks are available here.