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Questionnaire for CDS CCPs on Protection of Customer Initial Margin - page 22 / 32

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iii. Any procedures designed to control the effect of market movements on the value of customer positions during the pendency of the transfer – e.g., institution of hedge positions subsequent to the CM default, or assigned allocation of customer margin deficits to non-defaulting CMs – and the allocation of losses if the customer positions cannot be assigned to a non- defaulting CM.

During the management of a default LCH.C may use hedging trades to protect itself from the effects of market movements. LCH.C only deals with CMs as principal and is not party to CM/customer arrangements.

1. Who determines the close-out price applicable to terminated positions? If the CCP, does the CCP’s close-out price flow through to the customer? How is the close-out price determined? Does the same close-out price apply to CM-customer positions and offsetting CM-CCP proprietary positions?

Transferred customer positions move to the receiving CM and are marked to market at the applicable market price.

LCH.C’s Default Rules detail how it closes out against the CMs.

2. How does the CCP account for any unpaid variation margin obligations that may have accrued subsequent to the default of the CM?

As stated above, Variation Margin that accrues during the period between the default of a clearing member and the transfer or close out of positions likewise forms part of the margin held by LCH.C against the defaulted clearing member. Any such margin that remains once all positions of the defaulting member are transferred or closed out is returned to the defaulting member or its administrators.

iv. Any limitations on the rights of customers to (a) terminate non- cleared transactions with CMs upon a CM default, or (b) set off

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