ILS PAI, PAA and discounting switch

Dear SwapClear Participant,

At present, LCH Limited (LCH) uses ILS TELBOR to calculate (i) the price alignment interest (PAI) and price alignment amount (PAA) payable in respect of ILS-denominated SwapClear Contracts [1], and (ii) the daily net present value of such SwapClear Contracts. The announcement of the future cessation of ILS TELBOR [2] means that the market, including LCH’s SwapClear service, must transition from using ILS TELBOR to the alternative risk-free rate, which is the Shekel overnight interest rate (SHIR).

As a result, as per circular number 4314 [3] and as notified to our SwapClear participants separately in previous Rates Service Updates and ILS conversion related communications, LCH will, on 2 November 2024, perform a non-compensated transition to use SHIR (instead of TELBOR) for the purpose of calculating (i) PAI and PAA in respect of ILS-denominated SwapClear Contracts, and (ii) the daily net present value of such SwapClear Contracts [4].

This change will not affect the coupon payments on any ILS-denominated SwapClear contracts, which will remain linked to their existing floating rate option (e.g. ILS TELBOR 3M in case of ILS TELBOR SwapClear Contracts).

Finally, on and from 4 November 2024, any ILS-denominated SwapClear contract that arises from the clearing of an ILS-denominated swap will, from the point of registration, be valued using SHIR (instead of ILS TELBOR). For the avoidance of doubt, swaps that reference ILS TELBOR as their floating rate option will remain eligible for clearing at SwapClear beyond 4 November 2024.

The process described herein remains subject to risk governance and legal and regulatory review.

If you have any questions, please contact RatesClientServices@lch.com.

Kind regards,

Sales & Relationship Management, Rates Service

[1] “SwapClear Contract” includes an “FCM SwapClear Contract” for the purposes of this circular. SwapClear Contract and FCM SwapClear Contract have the meanings assigned to them in the General Regulations or FCM Regulations (as applicable) and made available at https://www.lch.com/resources/rulebooks/lch-limited.

[2] https://boi.org.il/en/communication-and-publications/press-releases/16-4-20242en/#:~:text=The%20Telbor%20Committee%20has%20decided,publication%20on%20June%2030%2C%202025.

[3] https://www.lch.com/membership/ltd-membership/ltd-member-updates/lch-conversion-outstanding-cleared-ils-telbor.

[4] The curves used for cashflow discounting will be updated to refer to SHIR based instruments.