LCH can alter its Regulations at any time by virtue of Regulation 34.
II. Legal Considerations
As stated in the introductory note to this questionnaire, the following questions should be considered under the laws of all jurisdictions relevant to the CCP (and its custodian, if applicable), the CMs (and their custodians, if applicable) and the customers. In the responses below, please highlight any areas of legal uncertainty. For matters requiring reasoned legal judgment, please state the level of legal comfort associated with the relevant response.
Customer Rights to CCP Margin
1. Please detail the ability of customers to recover IM held at the CCP (or the CCP’s custodian) upon the insolvency of the CCP (or the CCP’s custodian) – distinguishing between Required Margin, CCP Excess Margin, Dealer Excess Margin and any other categories of margin where relevant – in the event their positions are liquidated rather than transferred. Consider all relevant facts, including: (i) the manner in which the IM is held at the CCP or its custodian; (ii) the nature of the customer obligations secured by liens on the IM; (iii) the composition of the IM (e.g., whether the IM consists of securities or cash); (iv) in the event of the insolvency of the CCP’s custodian, any restrictions (legal or otherwise) on the ability of the CCP to recover IM from the insolvent custodian; and (v) any other matters described in your responses to the questions above that are relevant to this analysis. Analyze how these facts ultimately affect the conclusions reached.
LCH.C deals only with CMs and has no relationship with customers. Customers have no direct right to IM posted by CMs with LCH.C
a. What is the legal nature of the customers’ rights in the IM held at the CCP (or the CCP’s custodian)?
i. To the extent relevant to this analysis, please consider whether customers hold proprietary (i.e., ownership) rights in the IM held at the CCP (or the CCP’s custodian), or merely contractual rights to recovery of the IM vis-à-vis the defaulted CCP (or the CCP’s custodian).