Adverse pass-through effects (e.g., unfavorable pricing) flowing from the CMs to customers as a result of the foregoing; and
The legal regime applicable to the proposed clearing framework upon an insolvency of a CM, customer or custodian.
13. What is the process for approval and consideration of risks presented by additional CM or custodian entity types (by way of inclusion of new CMs or custodians or mergers of existing CMs or custodians in a manner that changes the applicable legal structure)?
As part of the new member take on process LCH.C staff visit potential clearing members to discuss corporate structure and strategy; the scope of their business generally and clearing activities specifically (planned and current); financials; regulation; operational processes; banking facilities, and risk management (of clients and any proprietary business, margining, credit management policy, stress testing, etc.). In addition, this visit provides the opportunity for the applicant to demonstrate the systems that are in place and to give an overview of their operational processes.
B. Segregation and Safekeeping of IM
IM Held at or for the CCP (“CCP Margin”)3
Composition of CCP Margin
1. Please describe the types of assets (e.g., Treasury securities, US dollars, non-US currencies, etc.) that may be deposited as CCP Margin to satisfy IM requirements imposed by the CCP (“Required Margin”). To what extent did customer protection considerations affect the CCP’s determination in this regard?
Details of the acceptable forms of cash and collateral that can be posted to LCH.C, and applicable haircuts, are available on our website: http://www.lchclearnet.com/risk_management/ltd/acceptable_collateral.asp
Acceptable collateral is selected based on factors including market liquidity and volatility, and issuer quality.
3 Please also answer the questions below with respect to excess variation margin (i.e., mark-to-market margin posted by customers in excess of the CCP’s requirements), to the excess variation is treated differently from CCP Excess Margin.