protection and the sharing of any shortfalls in custodial property. 9
Whether the custodian has the right to rehypothecate or cause liens to be placed on the Dealer Margin that is not posted to the CCP, and if so, whether any such liens have been subordinated or waived;
Whether investment of Dealer Margin that is not posted to the CCP in interest-bearing instruments or vehicles (e.g., overnight sweeps into repos) is permitted or required, and if so, in what types of instruments or vehicles;
Who obtains the economic benefit of investment of Dealer Margin in permitted instruments? Who bears the risk of loss?
Under what circumstances Dealer Margin may be (i) withdrawn by customers or (ii) applied by CMs or the CCP; and
viii. How the risk of the custodian’s insolvency is allocated among the CMs and the customers (as a group and individually).
Please consider whether a customer’s positions and initial and variation margin (and any associated contractual relationships) can be ported to another CM, under each of the following scenarios.
Can a customer effect a voluntary, pre-CM default transfer of its positions and margin (and any associated contractual relationships)? From which entities must the customer obtain consent before effecting such a transfer?
CMs cannot transfer margin except through withdrawing excess margin. Positions can be transferred with consent from both CMs and LCH.C.
b. Does the CCP have the authority to mandate that a CM transfer any or all of its customer positions and initial and variation margin (and any associated contractual relationships) to another clearing member, if such CM is not in “default” (as defined in the CCP’s rules)?
See note 6.