FX Haircuts on Collateral

Report date

Circular No.

LCH Circular No 3947


19th April 2018


All LCH Ltd Clearing Members


Dear LCH Member,

As first announced to Clearing Members on the 7th April 2017, LCH Ltd is enhancing its management of FX risk on collateral posted to the Clearing House as margin, with the objective to apply FX haircuts only on collateral where the collateral currency differs from the currency of risk in the cleared trade portfolio.

The following provides further details on the second phase of this programme, which subject to regulatory review/approval we aim to fully implement by the end of 2018.

This second phase will remove the FX haircut floor of 5.25% on securities and realise the full benefit of only applying an FX haircut on cash and securities collateral where the collateral currency differs from the currency of risk. For example: a cleared portfolio that only contains EUR positions and for which EUR securities cover the margin requirement, will no longer be subject to an FX haircut.

The changes are broadly categorised into the following areas:

  • Collateral valuation – Q4 (exact date tbc);
  • Collateral Reporting – 3rd September;
  • The Collateral Management System (CMS) – 21st April;
  • Tri-party collateral – Starting from 2nd July (dates differ per Clearing Member); and
  • Margin calculations and reporting – Starting in Q4 (dates differ per Clearing Service);


Further details on implementation timelines, updated report samples and member testing guidance will be provided in due course.

The changes will also be further discussed with Clearing Members that are part of LCH Product Advisory Groups, Risk Working Groups and in the usual change forums.

Further information for each of the impacts listed above, is provided in the attached pdf.

If you have any questions please contact us at fx.haircut.project.enquiries@lch.com