Portfolio Margining Floor

Report date

Circular No.

LCH Circular No 3888


19th September 2017


All LCH Ltd members


Dear Member,

Further to our notification sent on 1st September 2017 and following the completion of regulatory review, LCH Limited (“LCH”) will implement a portfolio margining floor for initial margin, effective from Monday 2nd October 2017.

The floor is required in order to comply with the ESMA opinion published on 10th April 2017, which clarifies the grouping of financial instruments or products to be used when ensuring a portfolio margining model meets the requirements of EMIR RTS Article 27 Paragraph 4, namely that “where portfolio margining covers multiple instruments, the amount of margin reductions shall be no greater than 80 % of the difference between the sum of the margins for each product calculated on an individual basis and the margin calculated based on a combined estimation of the exposure for the combined portfolio”.

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LCH will apply the portfolio margining floor on a daily basis to any account where the core initial margin is less than the minimum required by Article 27 Paragraph 4 and the ESMA opinion.  In any such cases an additional margin will be charged in order to bring the total margin up to the minimum required level. 

The impact on margin levels of this change is expected to be small, with only a limited number of members likely to be impacted.  LCH Risk and Client Services have already contacted those members that are directly affected based on current positions.

Calculations will be performed first thing in the morning based on the previous day’s end-of-day positions. Any additional margin required will be called as part of the first intraday margin run of the day.  LCH plans a subsequent phase of this project in which the floor will be fully integrated within the core margin and reporting suite at the account level.  We will advise a go-live date for this phase later in the year.

If you have any questions please contact SwapclearMembershipSales@lch.com or mailto:swapclearrisk@lch.com