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Questionnaire for CDS CCPs on Protection of Customer Initial Margin - page 13 / 32

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LCH.C only deals with CMs as principal and is not party to CM/customer arrangements.

c. At what point is the CM deemed to be in default for failing to transfer CCP Margin to the CCP?

Under default rule 3, the CH can declare a default in respect of a member who appears to the CH to be unable or likely to become unable to meet its obligations in respect of one or more contracts. Failure to make a payment due to the CH is indicative of the CM being so unable by virtue of default rule 5(f).

d. What considerations militate in favor of, or against, allowing customers to deposit CCP Margin directly with the CCP?

Economic Effects of Proposed Clearing Structure for CCP Margin

6. Please describe the economic benefits or disadvantages (from the perspective of CMs and their customers) of the proposed clearing structure for holding IM at the CCP or its custodian (as opposed to at CMs or their custodians).

As CCP LCH.C is neutral on this matter. We require that IM is provided in a timely and legally robust manner. Further questions regarding our clearing members etc. are a matter for them. However it must be clear that, whether IM is related to a house or client position, LCH.C has clear and unambiguous legal rights in such IM.

  • a.

    Do CMs have the ability to generate returns on customer property under the proposed structure?

  • b.

    To what extent do the benefits or disadvantages of the proposed structure flow through from CMs to their customers?

Determination of Required Margin and Related Considerations

7. Is Required Margin determined on the basis of net exposures (i.e., by netting offsetting positions across different customers) or gross exposures? Are offsetting positions within a particular customer-CM relationship netted for this purpose?

As stated above segregated customer margin is calculated via a customer omnibus account, for which account a net required margin figure is determined.

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