Company: TSI
Filing Date: 2025-10-06
Form Type: N-2/A
Source: 0001193125-25-232082
Chunk: 187

Company: TCW STRATEGIC INCOME FUND INC
Filing Date: 2025-10-06
Form: N-2/A
Chunk 187
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 posting higher margin amounts for uncleared swaps than would otherwise be the case. Central clearing is designed to reduce counterparty credit risk compared to uncleared swaps because central clearing interposes the central clearinghouse as the counterparty to each participant’s swap, but it does not eliminate those risks completely. There is also a risk of loss by a Fund of the initial and variation margin deposits in the event of insolvency of the clearing member with which a Fund has an open position in a swap contract. The assets of a Fund may not be fully protected in the event of the insolvency of the clearing member or central counterparty because customers of the clearing member (like the Fund) are generally limited to recovering only a pro rata share of all available funds and margin segregated on behalf of a clearing member’s customers. If the clearing member does not provide accurate reporting, a Fund is also subject to the risk that the clearing member could use the Fund’s assets, which are held in an omnibus account with assets belonging to the clearing member’s other customers, to satisfy its own financial obligations or the payment obligations of another customer to the central counterparty. When the Fund enters into a cleared derivative transaction, the Fund is subject to the credit and counterparty risk of the clearinghouse and the clearing member through which it holds its cleared position. Counterparty risk of market participants with respect to centrally cleared derivatives is concentrated in a few clearinghouses and increasingly fewer clearing members. It is not clear how an insolvency proceeding of a clearinghouse would be conducted and what impact an insolvency of a clearinghouse would have on the financial system.

In addition, with respect to cleared swaps, the Fund may not be able to obtain as favorable terms as it would be able to negotiate for an uncleared swap. In addition, a clearing member may unilaterally impose position limits or additional margin requirements for certain types of swaps in which the Fund may invest. Central counterparties and clearing members generally can require termination of existing cleared swap transactions at any time, and can also require increases in margin above the margin that is required at the initiation of the swap agreement. Margin requirements for cleared swaps vary on a number of factors, and the margin required under the rules of the clearinghouse and the clearing member may be in excess of and more frequent than the collateral required to be posted by the Fund to support its obligations under a similar uncleared swap.

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Exchange-trading on a swap execution facility is intended to increase liquidity and transparency in respect of swaps trading.