LTD Acceptable Securities
LCH Ltd accepts a wide range of debt securities issued by high quality sovereign government issuers and certain government agencies to meet initial margin obligations.
All securities posted as collateral are subject to “haircuts”. The size of the haircut is influenced by the tenor of the bond being pledged by the Clearing Member the nature of the security and an FX haircut. Haircuts are typically smaller for bonds with shorter maturities and higher for securities with longer tenors.
Click here to find details on the various securities that we accept at LCH Ltd as cover for initial margin.
The above link refers to securities collateral acceptable to LCH Ltd as initial margin cover for business cleared. Certain European regulators have agreed that OTC instruments registered with LCH Ltd should be exempt (following Directive 2000/12/EC of 20 March 2000) from credit equivalent amount add-on. Any such exemption applies to LCH Ltd Clearing Members only where initial margin requirements are met with cash or Government Securities acceptable by LCH Ltd. Clearing Members are responsible for ensuring that they comply fully with all regulatory requirements.
Whenever securities are transferred to LCH Ltd, these securities are held by LCH Ltd under the terms of a deed of charge between LCH Ltd and the respective Clearing Member or client.
As such, before any securities are accepted, the Clearing Member (or client) must have executed the deed of charge.
In addition to the legal form of charge, where client securities are to be delivered to LCH Ltd under a form of charge, a Client Consent is also required (with the exception of SwapClear Clearing Members).
To facilitate margin delivery, Clearing Members may lodge securities either directly with LCH or using a tri-party arrangement. All Clearing Member proposals for the lodgement, release or substitution of securities must be submitted through the Collateral Management System (CMS).
Certain taxation restrictions and requirements may apply to securities including, but not limited to:
i. Before pledging Spanish Government securities, Clearing Members will be required to provide LCH with details of their tax status, in accordance with Spanish tax law
ii. Before pledging Italian Government securities, Clearing Members will be required to complete a Tax Exemption Application Form, which can be obtained from LCH
iii. Before pledging US Government securities, Clearing Members will be required to provide LCH with details of their tax status, in accordance with US tax law
You can find the Client Consent form here.
Government Agency securities collateral is subject to a minimum nominal size and sufficient market quotes. Set by Clearing Member, concentration limits are the lower of 20% of the margin requirement or 500 million - USD for US agencies; or EUR for European agencies with separate limits applied to GNMA MBS securities. A 10% limit of the total amount outstanding on any Agency ISIN will also be applied at a Clearing Member level. Acceptable issues will be maintained using ISIN lists.
LCH Limited acceptable securities are also eligible for FCM collateral purposes and will be subject to all other constraints applicable to margin collateral more generally.
For additional information about posting non-cash collateral at LCH Ltd please see Section 4 of LCH Ltd’s Procedures.
LCH sets cut-off times for the posting of both bilateral non-cash collateral and triparty non-cash collateral with the clearing house. The deadlines are as follows:
|CSD/Custodian||Deadline for instructions (London time)|
|EuroClear UK/IE (CREST)||14:00|
|Fedwire – Citi and BNYMellon||
|Same Day Settlement||16:30||16:30|
|Next Day Settlement||16:30 (S-1)||16:30 (S-1)|
LCH requires a minimum of 2 working days notice for any substitution of collateral in excess of 100mn cash value. This applies in respect of cash being substituted for non-cash, or vice versa and substituting cash for cash in an alternative currency.
At LCH we are great supporters of triparty collateral services and the benefits that they can provide for our Clearing Members.
Triparty collateral management allows you to post non-cash collateral to LCH Ltd to cover initial margin requirements in a more efficient way than pledging bonds bilaterally, which can be operationally burdensome and inefficient.
Triparty services provide a more streamlined process. They’re automated, facilitating the delivery of non-cash collateral to LCH to meet your initial margin obligations on your behalf without requiring you to specify the specific securities you wish to post.
The utilisation of triparty agents among our membership is growing, with around 20% of LCH’s non-cash collateral delivered to the clearing house through triparty services.
More automation and more efficiency – what’s not to like?
Below you can find the relevant settlement information for posting margin to LCH Ltd.
The accounts to which margin should be posted at each custodian bank can differ, depending on the government issuing the security you’re posting and whether margin is been posted under an FCM membership or as a non-FCM member.
For ease of use CMS will automatically restrict the options available based on the mnemonic and ISIN selected.