LCH | 10 Paternoster Square | London EC4M 7LS | T: +44 (0)20 7426 7000 | F: +44 (0)20 7426 7001 | lch.com

LCH Group Holdings Limited | LCH Limited | Banque Centrale de Compensation | LCH.Clearnet LLC

LCH Limited. Registered in England No. 25932 Registered Office: 10 Paternoster Square, London, EC4M 7LS

CORPORATE

VIA CFTC PORTAL 

October 3, 2023 

Mr. Christopher Kirkpatrick 

Commodity Futures Trading Commission 

1155 21st Street NW 

Three Lafayette Centre 

Washington, DC 20581 

LCH Limited Self-Certification: Periodic Surveys of Swaps and FX Transactions to Calculate 

Margin Requirements 

Dear Mr. Kirkpatrick, 

Pursuant to Commodity Futures Trading Commission (“CFTC”) Regulation §40.6(a), LCH Limited 

(“LCH”), a derivatives clearing organization registered with the CFTC, is submitting for selfcertification revisions to its Procedures and FCM Procedures (“LCH Rules”) related to requiring 

ForexClear and SwapClear members to respond to reasonable requests for data for purposes of 

calculating liquidity risk margin (“LRM”) and settlement management margin (“SMM”) requirements 

(collectively, the “Proposed Rule Change”). 

Part I: Explanation and Analysis 

LCH requires ForexClear and SwapClear members to post collateral to satisfy initial margin 

requirements. LCH may also charge additional margin as part of the initial margin requirements, 

including for liquidity risk related to concentrated exposures and settlement risk associated with 

potential settlement failure. LCH currently engages in periodic surveys of its ForexClear and 

SwapClear members to obtain certain data (mainly prices) in relation to swaps or FX transactions 

(“Survey Data”) for the purpose of calculating the LRM and SMM requirements. 

The Proposed Rule Change will require ForexClear and SwapClear members to respond to LCH’s 

reasonable request for Survey Data in related to calculating LRM and SMM requirements. In addition, 

the Proposed Rule Change aligns the LRM provisions across the FCM and non-FCM procedures. 

Part II: Description of the Rule Changes 

LCH will amend Section 2.1.9(a) and Section 2.2.11(b) of the FCM Procedures to amend the 

description of the LRM. LCH will also amend Sections 1.5.6(c) and Section 1.5.6(e) of the LCH Limited 

Procedures Section 2I with respect to the LRM and SMM requirements, respectively. LCH will also 

amend Section 1.9.3 of the LCH Limited Procedures Section 2C with respect to the LRM 

requirements. 

The changes to the LCH Rules are included as Appendices I - III in black line form. The changes will 

be effective not earlier than October 23, 2023. 
CORPORATE

Part III: Core Principles Compliance 

LCH has reviewed the Proposed Rule Change against the requirements of the Core Principles and 

finds it will continue to comply with all requirements and standards set forth therein. Specifically, this 

rule change has potential relevance to Core Principles C (Participant and Product Eligibility) and D 

(Risk Management). 

LCH believes the Proposed Rule Change will not impact its ongoing compliance with the objectives 

of Core Principle C and CFTC Rule 39.12. Core Principle C requires, among other things, each 

derivatives clearing organization establish appropriate admission and continuing eligibility standards 

for members of, and participants in, the derivatives clearing organization. In addition, Core Principle 

C requires that participation and membership standards be objective, publicly disclosed and permit 

fair and open access. LCH is proposing that ForexClear and SwapClear members contribute Survey 

Data upon a reasonable request from LCH for purposes of calculating the LRM and SMM, as 

applicable. This membership requirement provides LCH with the necessary information to effectively 

calculate margin requirements for purposes of managing risk. In addition, the Proposed Rule Change 

will be uniformly applied to all ForexClear and SwapClear members as part of such members’ overall 

membership requirements. LCH therefore believes the Proposed Rule Change is consistent with Core 

Principle C and CFTC Rule 39.12. 

LCH believes the changes described in this filing will not impact LCH’s ongoing compliance with the 

objectives of Core Principle D and CFTC Rule 39.13. Core Principle D requires, among other things, 

each derivatives clearing organization possess the ability to manage the risks associated with 

discharging the responsibilities of the derivatives clearing organization through the use of appropriate 

tools and procedures. This includes ensuring that each model and parameter used in setting margin 

requirements be risk-based. LCH is proposing to amend the LCH Rules to require ForexClear and 

SwapClear members to provide Survey Data for purposes of calculating the LRM and SMM. The 

requirement to provide Survey Data will ensure LCH has sufficient information for purposes of 

calculating risk-based margin requirements in accordance with Core Principle D and CFTC Rule 

39.13. 

Based on the foregoing, LCH believes the Proposed Rule Change is consistent with the requirements 

of Core Principle C on Participant and Product Eligibility under CFTC Rule 39.12 and Core Principle 

D on Risk Management under CFTC Rule 39.13. 

Part IV: Public Information 

LCH has posted a notice of pending certification with the CFTC and a copy of the submission on 

LCH’s website at: https://www.lch.com/resources/rulebooks/proposed-rule-changes. 

Part V: Opposing Views 

There were no opposing views expressed to LCH by governing board or committee members, 

members of LCH or market participants that were not incorporated into this proposal. 

Certification 

LCH hereby certifies to the CFTC, pursuant to the procedures set forth in CFTC Regulation §40.6, 

that the attached submission complies with the Commodity Exchange Act, as amended, and the 

regulations promulgated thereunder. 
CORPORATE

Should you have any questions, please contact me at ryan.hajen@lseg.com. 

Yours sincerely, 

Ryan Hajen 

Ryan Hajen 

Senior Compliance Manager 

LCH Limited 
CORPORATE

Appendix I 

FCM Procedures 

Changed Pages 

 
CORPORATE

FCM PROCEDURES OF THE CLEARING HOUSE

LCH LIMITED
FCM Procedures FCM SwapClear

LCH Limited © 2023 - 37 - July August 2023

CORPORATE

The coupon payments will be adjusted to fall on actual Business Days 

according to the Business Day Convention specified.

(l) Negative Interest Rate Method

FCM Clearing Member should note the provisions of Section 3.2 of 

Part A of Schedule 1 to the FCM Product Specific Contract Terms and 

Eligibility Criteria Manual regarding the applicability of the Negative 

Interest Rate Method to an FCM SwapClear Contract. FCM Clearing 

Members may, in the circumstances, wish to ensure that any trade 

submitted for registration follows that Negative interest Rate Method.

(m) Calculation of Inflation Indices

The Index level used for calculating the Floating Rate for an Inflation 

FCM SwapClear Contract is determined according to the 2008 ISDA 

Inflation Definitions in respect of the Index applicable to such Inflation 

FCM SwapClear Contract. 

In the event an Index is no available to calculate the Index Final, the 

Clearing House will, in its sole discretion, determine a value for the 

Index Final.

(n) Non-deliverable Interest Rate Swaps

The Clearing House will calculate all coupon payments for FCM

SwapClear Contracts that are non-deliverable interest rate swaps,

including the Fixed Amount or Floating Amount payable under any

such FCM SwapClear Contract, in USD, and all amounts due or

payable under such FCM SwapClear Contracts must be paid in USD.

2.1.9 Initial Margin

The Clearing House will require FCM Clearing Members to furnish it with 

Initial Margin. This amount will be determined by the prevailing market 

conditions and the expected time to close out the portfolio. The Portfolio 

Approach to Interest Rate Scenarios (PAIRS) will be used to calculate Initial 

Margin requirements for FCM SwapClear Contracts.

Separate Initial Margin calculations are performed for an FCM Clearing 

Member's house “H” and client “C” accounts and, within a “C” account, 

separately in respect of each FCM Client Sub-Account therein. No offset 

between the “C” and “H” accounts is permitted.

The Clearing House reserves the right to require additional amounts of Margin

from a specific FCM Clearing Member or from all FCM Clearing Members in 

accordance with FCM Regulation 14 (Margin and Collateral).
FCM Procedures FCM SwapClear

LCH Limited © 2023 - 38 - July August 2023

CORPORATE

(a) Liquidity Risk Margin Multiplier

The Clearing House may require an FCM Clearing Member to transfer 

Collateral to the Clearing House to meet the liquidity risk margin 

requirement applicable to such FCM Clearing Member. This 

requirement is based on the risk profile of the FCM Clearing Member

(or account) and the expected cost of hedging in a default scenario. 

The parameters applicable to the model are reviewed on an ongoing 

basis.

The Clearing House undertakes periodic liquidity surveys for the 

purpose of calculating liquidity risk margin requirements. FCM 

Clearing Members are required to respond to the Clearing House’s 

reasonable request for data as part of such liquidity surveys.

Risk Management applies a liquidity multiplier based on Worst Case 

Loss (WCL) exceeding certain thresholds on the FCM Clearing 

Member's whole portfolio and individual currencies. The threshold 

amounts and multipliers are reviewed on an on-going basis. FCM 

Client accounts are treated as independent accounts for purposes of

liquidity and will be called only in the event that the individual account 

exceeds the relevant threshold.

(b) Intra-day Margin Calls

In accordance with the Clearing House's FCM Regulations, the 

Clearing House is entitled to make additional margin calls for payment 

the same day (intra-day margin calls) where it is considered necessary. 

Intra-day margin calls can be called at any time throughout the 

Business Day. Intra-day margin calls will usually be made via the 

Protected Payments System (PPS) (see Section 2.1.10).

In certain circumstances, the Clearing House may wish to make a call 

for additional funds after the UK PPS cut-off time of 08:00 New York 

time. In this event, the Clearing House will require payment of 

additional funds through PPS facilities in the USA (see Section 3.2.1). 

Members must ensure, in these circumstances, that they are in a 

position to fund such calls through their nominated US PPS account 

within one hour of the call.

(c) Calculation of Initial Margin

Portfolio Approach to Interest Rate Scenarios (PAIRS)

The PAIRS calculation is a VAR based approach based on filtered 

historical simulations. All positions in each currency are re-valued 

under a series of cross portfolio yield curve scenarios to estimate the 

highest forecast loss and therefore the Initial Margin requirement. 

Further details of this method are available upon request and are 

detailed in the PAIRS TIP document. The PAIRS document and 

further information relating to Initial Margin calculations can be 
FCM Procedures FCM SwapClear

LCH Limited © 2023 - 39 - July August 2023

CORPORATE

obtained from the Rates team at +44 (020) 7426 6325 or +44 (020) 

7426 7428.

(d) Tenor Basis Risk Margin Add-on

A margin add-on will be applied in respect of tenor basis risk.

(e) Default Fund Additional Margin

The Clearing House may from time to time require an FCM Clearing 

Member to transfer Collateral to the Clearing House to meet the 

default fund additional margin requirement as determined and notified 

by the Clearing House to such FCM Clearing Member (“DFAM”). 

The methodology by which the Clearing House determines DFAM is 

available on the secure area of the Clearing House website. The 

Clearing House will record any Collateral an FCM Clearing Member 

has provided to meet its DFAM obligation to the FCM Clearing 

Member’s Proprietary Account.

(f) Collateral for Stress Loss Exposure

In response to a request from an FCM Clearing Member, the Clearing 

House may require additional Collateral to cover such FCM Clearing 

Member’s stress loss exposure with respect to an FCM Client SubAccount (the “Stress Loss Margin”). The Stress Loss Margin may be 

subject to an additional percentage add-on as the Clearing House may 

require in its sole discretion. The Stress Loss Margin and any add-ons, 

as applicable, will be called as part of the end of day margin run and by 

means of morning PPS calls. The request must indicate the percentage 

of the stress loss exposure that will be covered by Stress Loss Margin. 

Any request pursuant to this paragraph is subject to the Clearing 

House’s consent in its sole discretion (and the Clearing house may 

apply a lower percentage than that requested by the SwapClear 

Clearing Member).

An FCM Clearing Member may cease paying Stress Loss Margin by 

giving not less than three (3) business days’ written notice to the 

Clearing House.

Before making any request to pay or notifying the Clearing House of 

ceasing to pay Stress Loss Margin, an FCM Clearing Member must 

obtain the consent of the FCM Client to which the Stress Loss Margin 

applies. In making any request pursuant to this paragraph, the FCM 

Clearing Member is deemed to represent that it has obtained such 

consent.

Where FCM SwapClear Contracts entered into by an FCM Clearing 

Member in respect of an FCM Client which has requested to pay Stress 

Loss Margin are transferred to a Receiving Clearing Member, such 

Receiving Clearing Member may be required to pay additional initial 
FCM Procedures FCM SwapClear

LCH Limited © 2023 - 40 - July August 2023

CORPORATE

margin to the Clearing House in the event that it does not pay Stress 

Loss Margin with respect to the transferring FCM Client.

2.1.10 Intra-Day Margin Call: Collateral Management

General – Intra-day Margining

Following an intra-day margin call and unless notified otherwise by an 

FCM Clearing Member at the time of an intra-day margin call the 

Clearing House will deduct cash, in the appropriate currency, directly 

from the relevant FCM Clearing Member's PPS account to cover the 

Margin needed to meet that intra-day margin call.

Cash payments in respect of intra-day Margin requirements are 

accepted only in USD by the Clearing House.

It is the responsibility of the FCM to ensure that they have sufficient 

cash funds in place with their PPS bank(s) in order to avoid any intraday liquidity issues.

2.1.11 Compression

(a) An FCM Clearing Member may compress or decompress Eligible 

FCM SwapClear Compression Contracts in accordance with FCM 

Regulation 46(n) and this Section 2.1.11. FCM Clearing Members

may request the compression or decompression of Eligible FCM 

SwapClear Compression Contracts as follows:

(A) an FCM Clearing Member can request that all Eligible FCM 

SwapClear Compression Contracts entered into (i) on behalf of 

a designated FCM Client or (ii) in such FCM Clearing 

Member's Proprietary Account be considered for compression 

by the Clearing House. Such a request shall be reconsidered by 

the Clearing House automatically each day (and the results 

notified to the FCM Clearing Member after the applicable 

scheduled compression run) until the FCM Clearing Member 

notifies the Clearing House to discontinue the compression of 

Eligible FCM SwapClear Compression Contracts.; 

(B) an FCM Clearing Member may notify the Clearing House 

through the ClearLink API or SwapClear Portal specifying the 

Eligible FCM SwapClear Compression Contracts it wishes to

be compressed;

(C) an FCM Clearing Member may notify the Clearing House 

through any FCM Approved Trade Source System previously 

approved for this purpose by the Clearing House, but only

where the compression is by way of netting in respect of 

Eligible FCM SwapClear Compression Contracts in respect of 

which the position of the FCM Clearing Member (on its own 

behalf or on behalf of the relevant FCM Client) is (x) in the 
FCM Procedures FCM ForexClear

LCH Limited © 2023 - 180 - August 2023

CORPORATE

Principles:

(A) CVS is calculated at EOD on T-1.

(B) Variation Settlement in respect of an FX FCM's portfolio of 

open ForexClear Contracts) is paid/ received, subject to the 

netting provisions of FCM Regulation 47, on the morning of T.

(C) The Price Alignment Amount Rate for T to be applied is known 

at EOD T.

(D) The Price Alignment Amount is calculated on the night of T, 

for CVS of T-1 for FCM ForexClear Contracts up to the 

business day before their Settlement Date.

(E) The Price Alignment Amount is paid or received on morning of 

T+1 via PPS.

Components:

(F) Price Alignment Amount Rate.

(G) Cumulative Variation Settlement of the FX FCM’s portfolio

open FCM ForexClear Contracts.

(H) Accrual Factor (factor used to convert the Price Alignment 

Amount Rate from an annual rate to a daily rate, on a basis of a 

year of 360 days).

So:

(I) Price Alignment Amount T = Price Alignment Amount T Rate 

x CVS T--1 x Accrual Factor.

The Clearing House uses the Price Alignment Amount Rate from the 

relevant EOD overnight index swap curves, which is sourced from the 

Clearing House.

2.2.11 Initial Margin (“IM”)

The Clearing House will require FX FCMs to furnish it with IM. This amount 

will be calculated intraday and at EOD on each business day as part of each 

Margin Run. Each FX FCM’s IM requirement, is calculated for the portfolio of 

open FCM ForexClear Contracts and FCM ForexClear Transactions using 

ForexClear's Portfolio Analysis and Risk (“FxPAR”) margining model. 

FxPAR is based on a modified filtered historical simulation value-at-risk 

methodology. All open FCM ForexClear Contracts and FCM ForexClear 

Transactions in each Currency Pair are re-valued under a series of cross 

portfolio yield curve scenarios to estimate the potential portfolio profit and 

loss and therefore the IM requirement.
FCM Procedures FCM ForexClear

LCH Limited © 2023 - 181 - August 2023

CORPORATE

These scenarios will be continually monitored and reviewed periodically or on 

an ad hoc basis according to market conditions. FX FCMs will usually be 

notified by the Clearing House of alterations to margin parameters no later 

than the day before calls are made based on the new parameters. Further 

details of this method are available upon request from the ForexClear Risk 

team.

FxPAR uses the historical (5 year) data submitted by FXCCMs pursuant to 

Section 2.2.9, which is adapted to current market prices.

Separate Initial Margin calculations are performed for an FX FCM's house 

“H” and client “C” accounts and, within a “C” account, separately in respect 

of each FCM Client Sub-Account therein. No offset between the “C” and “H” 

accounts is permitted.

The Clearing House reserves the right to require additional amounts of Margin 

from a specific FX FCM or from all FX FCMs in accordance with FCM 

Regulation 14 (Margin and Collateral).

(a) Credit Risk Multiplier (“CRiM”)

The CRiM applied will consider the FX FCM's credit worthiness, 

Initial Margin level and/or stress testing exposures in accordance with 

LCH Credit Risk Policy.

(b) Liquidity Risk MarginMultiplier (“LRMM”)

LRM reflects the additional risk due to the FX FCM having 

concentrated risk exposures above set thresholds in a particular 

Currency Pair or tenor of FCM ForexClear Contracts. The LRM

requirement is calculated in accordance with parameters set by the 

ForexClear Default Management Group (the "FXDMG").

The Clearing House undertakes periodic liquidity surveys for the 

purpose of calculating LRM requirements. FX FCMs are required to 

respond to the Clearing House’s reasonable request for data as part of 

such liquidity surveys.Where an FXCCM has an exposure above set 

thresholds in a particular Currency Pair or tenor of FCM ForexClear 

Contracts, the LRMM is applied and additional IM is charged. The 

LRMM is calculated in accordance with parameters set by the 

ForexClear Default Management Group (the “FXDMG”) according to 

tenor and notional concentration. The thresholds are reviewed 

quarterly and use prevailing perceptions of market conditions as seen 

by the FXDMG.

LRMM increases IM called due to concentrated Currency Pair 

exposure by tenor of FCM ForexClear Contracts. Additional IM is 

called to mitigate the risk of a position not being closed out in seven 

days and/or the extra hedging costs that may be incurred.
FCM Procedures FCM ForexClear

LCH Limited © 2023 - 182 - August 2023

CORPORATE

The Clearing House calculates and applies LRMM as part of each 

Margin Run, based on the IM for each Currency Pair in the FX FCM's 

house position-keeping account.

(c) Sovereign Risk Multiplier (“SRM”)

SRM reflects the additional risk related to a potential country default

or a change in a country's currency regime, including risk relating to a

country’s external debt or level of foreign exchange reserves, which

would impact FCM ForexClear Contracts transacted in certain

Reference Currencies. The SRM calculation considers the probability

of sovereign default occurring and the depreciation or appreciation risk

of the Reference Currencies.

(d) Default Fund Additional Margin

The Clearing House may from time to time require an FX FCM to

transfer Collateral to the Clearing House to meet the default fund

additional margin requirement as determined and notified by the

Clearing House to such FX FCM (“DFAM”). The methodology by

which the Clearing House determines DFAM is available on the secure

area of the Clearing House website. The Clearing House will record

any Collateral an FX FCM has provided to meet its DFAM obligation

to the FX FCM’s Proprietary Account.

2.2.12 Additional Margin, ForexClear Tolerance, MER Buffer, Completion 

Margin and Intraday Margin Calls

(a) Additional Margin

The Clearing House may require an FX FCM to furnish additional

amounts of Margin (in addition to Initial Margin) as security for the

performance by an FX FCM of its obligations to the Clearing House in

respect of FCM ForexClear Contracts to which such FX FCM is a

party in accordance with FCM Regulation 14 (Margin and Collateral).

This may be required from time to time where, in the opinion of the

Clearing House, the risk inherent in FCM ForexClear Contracts to

which such FX FCM is a party is not adequately covered by Initial

Margin. This may cover instances where stress testing losses under

various scenarios provided in the ForexClear Default Fund Supplement

have increased.

(b) Minimum Excess Requirement Buffer (“MER Buffer”)

To facilitate the intraday registration of FCM ForexClear Contracts, at

each EOD Margin Run, the Clearing House will call from each FX

FCM, separately in respect of its Proprietary Account and each of its

FCM Client Sub-Accounts, an amount of IM in respect of its and its

FCM Clients' potential intraday Liabilities (as defined below in Section

2.2.17) for the following day (“MER Buffer”), provided that the

Clearing House shall not call MER Buffer from an FX FCM that (i)
CORPORATE

Appendix II 

LCH Limited Procedures – Section 2I – ForexClear Clearing Service

Changed Pages 

 
CORPORATE

LCH LIMITED 

PROCEDURES SECTION 2I 

FOREXCLEAR CLEARING SERVICE
Clearing House Procedures ForexClear Service 

LCH Limited © 2023 - 38 - AugustJuly 2023

CORPORATE

(ii) Components:

(A) PAA Rate (annualised interest applied to an FXCCM's 

MTM).

(B) MTM.

(C) Accrual Factor (factor used to convert the PAA Rate 

from an annual rate to a daily rate, on a basis of a year 

of 360 days).

(iii) So:

(A) PAA T = PAAT Rate x MTMT-1 x Accrual Factor.

The Clearing House uses the PAA Rate from the relevant EOD 

overnight index swap curves, which is sourced from the Clearing 

House.

1.5.6 Initial Margin: The Clearing House will require FXCCMs to transfer 

Collateral to the Clearing House in respect of their initial margin obligations.

Each FXCCM’s initial margin obligation will be calculated on an aggregate 

basis across its ForexClear Contracts within the ForexClear Non-Deliverable

Service and ForexClear Deliverable Service.

(a) Calculation of Initial Margin: Separate initial margin calculations are 

performed for an FXCCM's Proprietary Account, each Client Account

(other than an Indirect Gross Account) and each Indirect Gross SubAccount within an Indirect Gross Account. No offset between the

Proprietary Accounts and the Client Accounts is allowed (except 

pursuant to Rule 8(d) of the Default Rules or any Insufficient 

Resources Determination Rule) and no offset between any Client 

Accounts is allowed (except pursuant to Rule 15(a)(ii) of the Default 

Rules, a Cross-ISA Client Excess Deduction or any Insufficient 

Resources Determination Rule).

The initial margin obligation is calculated on a real-time (or near realtime) basis throughout each day. With respect to each FXCCM, it is 

calculated for the portfolio of open ForexClear Contracts and 

ForexClear Transactions using ForexClear's Portfolio Analysis and 

Risk ("FxPAR") margining model. FxPAR is based on a modified 

historical simulation expected shortfall methodology. All open 

ForexClear Contracts and ForexClear Transactions in each Currency 

Pair are re-valued under a series of FX rate and yield curve scenarios 

to estimate the potential portfolio profit and loss and therefore the 

initial margin requirement.

The adequacy of the initial margin calculation is reviewed daily. 

ForexClear Clearing Members will usually be notified by the Clearing 

House of alterations to margin model parameters no later than the day 
Clearing House Procedures ForexClear Service 

LCH Limited © 2023 - 39 - AugustJuly 2023

CORPORATE

before calls are made based on the new parameters. Further details of 

this method are available upon request from the ForexClear Risk team.

FxPAR uses the market data submitted by FXCCMs pursuant to 

paragraph 1.5.1(a) (Product Valuation).

Initial Margin Add-ons: Credit risk, liquidity risk and sovereign risk 

margin add-ons are measured and applied to FXCCMs as part of the 

initial margin requirement calculation.

(b) Credit Risk Margin ("CRiM"): CRiM reflects the additional risk 

related to the FXCCM’s credit quality. The CRiM calculation 

considers the FXCCM's credit worthiness, initial margin obligation

level and/or stress testing exposures in accordance with LCH Credit 

Risk Policy.

(c) Liquidity Risk Margin (“LRM”): LRM reflects the additional risk due 

to the FXCCM having concentrated risk exposures above set 

thresholds in a particular Currency Pair or ForexClear Currency Pair or

tenor of ForexClear Contracts. The LRM requirement is calculated in 

accordance with parameters set by the ForexClear Default 

Management Group (the "FXDMG").

The Clearing House undertakes periodic liquidity surveys for the 

purpose of calculating LRM requirements. FXCCMs are required to 

respond to the Clearing House’s reasonable request for data as part of 

such liquidity surveys.

(c)(d) Sovereign Risk Margin ("SRM"): SRM reflects the additional risk

related to a potential country default or a change in a country's 

currency regime, including risk relating to a country’s external debt or 

level of foreign exchange reserves, which would impact ForexClear 

Contracts transacted in certain Reference Currencies. The SRM 

calculation considers the probability of sovereign default occurring and

the depreciation or appreciation risk of the Reference Currencies.

(e) Settlement Management Margin ("SMM"): SMM reflects the 

additional risk associated with a potential settlement failure. The SMM 

calculation considers the FXCCM’s future settlement obligations in

each of the relevant currencies and the potential cost of utilising and 

replenishing liquidity provisions, where required, to fulfil those 

settlement obligations. The SMM is calculated in respect of ForexClear 

Deliverable Contracts only.

The Clearing House undertakes periodic surveys for the purpose of 

calculating SMM requirements. FXCCMs are required to respond to 

the Clearing House’s reasonable request for data as part of such

surveys.

(d)(f) Default Fund Additional Margin: The Clearing House may from time 

to time require an FXCCM to transfer Collateral to the Clearing House 
Clearing House Procedures ForexClear Service 

LCH Limited © 2023 - 40 - AugustJuly 2023

CORPORATE

to meet the default fund additional margin requirement as determined 

and notified by the Clearing House to such FXCCM ("DFAM"). The 

methodology by which the Clearing House determines DFAM is 

available on the secure area of the Clearing House website. The 

Clearing House will record any Collateral an FXCCM has provided to 

meet its DFAM obligation to the FXCCM’s Proprietary Account.

(e)(g) Additional Margin: The Clearing House may require an FXCCM to 

transfer additional Collateral to the Clearing House (in addition to

amounts of Collateral already transferred to the Clearing House in 

respect of any initial margin and variation margin obligations) as 

security for the performance by an FXCCM of its obligations to the 

Clearing House in respect of ForexClear Contracts to which such 

FXCCM is a party in accordance with Regulation 20 (Margin and

Collateral). This may be required from time to time where, in the 

opinion of the Clearing House, the risk inherent in ForexClear 

Contracts to which such FXCCM is a party not adequately covered by 

the Collateral transferred in respect of the initial margin or any

variation margin obligations. This may cover instances where stress 

testing losses under various scenarios provided in the ForexClear 

Default Rules have increased.

1.5.7 Initial Margin Management Events Service ("IMMES"): IMMES aims to find 

risk and initial margin reducing ForexClear Contracts amongst participating 

FXCCMs. IMMES can be run on all Currency Pairs that are cleared through 

the ForexClear Service, although the primary focus will be on those Currency 

Pairs that contribute to the largest Collateral requirement.

FXCCMs who wish to obtain further information about, or to participate in, 

IMMES should contact ForexClear Risk on 0207 426 7527. To be eligible to 

participate in IMMES, an FXXCM must enter into an IMMES agreement with 

the Clearing House (the "IMMES Agreement").

1.6 General Margining Process

A "Margin and Settlement Run" is the process by which the Clearing House 

calculates an FXCCM's initial margin requirement (if any) and, during an EOD 

Margin and Settlement Run (i) in respect of each ForexClear CTM Contract, its 

variation margin requirement and PAI adjustment (if required) or (ii) in respect of 

each ForexClear STM Contract, its NPV Payment and PAA adjustment (if required)

(together the "Margin or Settlement Requirements"), and in the case of (i) only, 

applies that FXCCM's Collateral to satisfy the Margin Requirements for that FXCCM 

in respect of the ForexClear Contracts within that FXCCM's portfolio.

1.6.1 Types of Margin and Settlement Runs: There are three types of Margin and 

Settlement Run:

(a) ITD/Ad Hoc - Day Margin and Settlement Run

(i) ITD/Ad-hoc London daytime Margin and Settlement Runs are 

initiated as and when dictated by the schedule published by the 
CORPORATE

Appendix III 

LCH Limited Procedures – Section 2C – SwapClear Clearing Service

Changed Pages 
CORPORATE

LCH LIMITED 

PROCEDURES SECTION 2C 

SWAPCLEAR CLEARING SERVICE 
Clearing House Procedures SwapClear 

Service 

LCH Limited © 2023 - 31 - June August 2023

The Clearing House will calculate all coupon payments for SwapClear 

Contracts that are non-deliverable interest rate swaps, including the Fixed 

Amount or Floating Amount payable under any such SwapClear Contract, in 

USD, and all amounts due or payable under such SwapClear Contracts must be 

paid in USD.

1.9 Initial Margin

The Clearing House will require SCMs to transfer Collateral in respect of their initial 

margin obligations, which are not discharged. This amount will be determined by the 

prevailing market conditions and the expected time to close out the portfolio. The 

Portfolio Approach to Interest Rate Scenarios (PAIRS) will be used to calculate initial 

margin requirements for SwapClear Contracts.

Separate initial margin calculations are performed for an SCM's Proprietary Accounts 

and for each Individual Segregated Account, Custodial Segregated Account, Omnibus 

Segregated Account (other than an Omnibus Gross Segregated Account), and Indirect 

Gross Sub-Account within an Indirect Gross Account. In respect of each Omnibus 

Gross Segregated Clearing Client (other than a Combined Omnibus Gross Segregated 

Clearing Client) separate initial margin calculations are performed in respect of the 

SwapClear Contracts entered into by the relevant SCM on behalf of each such Omnibus 

Gross Segregated Clearing Client. In respect of a group of Combined Omnibus Gross 

Segregated Clearing Clients a single initial margin calculation is performed in respect 

of SwapClear Contracts entered into by the relevant SCM on behalf of each such group 

of Combined Omnibus Gross Segregated Clearing Clients.

No offset between the "C" and the "H" accounts is allowed (except (i) pursuant to Rule 

8(d) of the Default Rules or any Insufficient Resources Determination Rule, or (ii) in 

relation to the transfer of House Excess or Client Buffer in accordance with the 

Rulebook) and no offset between any Client Accounts is allowed (except pursuant to

Rule 15(a)(ii) of the Default Rules, a Cross-ISA Client Excess Deduction or any 

Insufficient Resources Determination Rule).

1.9.1 Margin Parameters

The Clearing House Risk Management Department uses appropriate yield curve 

scenarios, both in terms of shape and magnitude of movement, to capture 

potential losses based on an observed history - the primary component of the 

initial margin calculation. These scenarios will be continually monitored and 

reviewed periodically or on an ad hoc basis according to market conditions. 

However, in accordance with the Regulations, the Clearing House retains the 

right at its discretion to vary the rates for the whole market or for a specific 

SCM's Proprietary Account and/or Client Accounts.

1.9.2 Counterparty Risk Multiplier

The Clearing House reserves the right to require additional amounts of 

Collateral from a specific SCM or from all SCMs in accordance with Regulation 

20 (Margin and Collateral).
Clearing House Procedures SwapClear 

Service 

LCH Limited © 2023 - 32 - June August 2023

1.9.3 Liquidity MultiplierRisk Margin

The Clearing House may require an SCM to transfer Collateral to the Clearing 

House to meet the liquidity risk margin requirement applicable to such SCM. 

This requirement is based on the risk profile of the SCM (or account) and the 

expected cost of hedging in a default scenario. The parameters applicable to the 

model Risk Management apply a liquidity multiplier based on scenario values

exceeding certain thresholds on the SCM's whole portfolio and individual 

currencies. The threshold amounts and multipliers are reviewed on an ongoing 

basis. 

The Clearing House undertakes periodic liquidity surveys for the purpose of 

calculating liquidity risk margin requirements. SCMs are required to respond to 

the Clearing House’s reasonable request for data as part of such liquidity 

surveys. 

1.9.4 Intra-day Margin Calls

In accordance with the Regulations, the Clearing House is entitled, where 

considered necessary, to demand that a Clearing Member transfer additional 

Collateral to the Clearing House the same day (intra-day margin calls). Intraday margin calls can be made at any time (between 08:30 and 21:00 (London 

time) on a business day). Intra-day margin calls will usually be made via the 

protected payments system (see Section 1.11).

In certain circumstances the Clearing House may require a Clearing Member to 

transfer additional cash Collateral to the Clearing House after the closure of 

London PPS facilities at 16:00 hours London time. In this event the Clearing 

House will require payment of additional cash Collateral through PPS facilities 

in the USA (see Section 1.3 of Procedure 3 (Financial Transactions)). 

Members must ensure, in these circumstances, that they are in a position 

to comply with such demands through their nominated US PPS account 

within one hour of the demand.

1.9.5 Calculation of Initial Margin

Portfolio Approach to Interest Rate Scenarios (PAIRS)

PAIRS is a historical model which takes historical events that occurred within 

the look-back period and from these calculates initial margin in line with the 

Clearing House’s risk policies (which also take into account regulatory 

requirements). All positions in each currency are revalued under a series 

of scaled historical market moves and initial margin is calculated as the 

Expected Shortfall (ES) of the portfolio. Further details of this method are 

available upon request and are detailed in the PAIRS TIP document. The 

PAIRS document and further information relating to initial margin calculations 

can be obtained from SwapClear Risk on +44 (0)20 7 426 7549.

1.9.6 Default Fund Additional Margin
Clearing House Procedures SwapClear 

Service

LCH Limited © 2023 - 33 - June August 2023

The Clearing House may from time to time require an SCM to transfer Collateral 

to the Clearing House to meet the default fund additional margin requirement as 

determined and notified by the Clearing House to such SCM (“DFAM”). The 

methodology by which the Clearing House determines DFAM is available on 

the secure area of the Clearing House website. The Clearing House will record 

any Collateral an SCM has provided to meet its DFAM obligation to the SCM’s 

Proprietary Account.

1.9.7 Collateral for Stress Loss Exposure

In response to a request from a SwapClear Clearing Member, the Clearing 

House may require additional Collateral to cover such SwapClear Clearing 

Member’s stress loss exposure with respect to a Client Account (the “Stress 

Loss Margin”). The Stress Loss Margin may be subject to an additional 

percentage add-on as the Clearing House may require in its sole discretion. The 

Stress Loss Margin and any add-ons, as applicable, will be called as part of the 

end of day margin run and by means of morning PPS calls. The request must 

indicate the percentage of the stress loss exposure that will be covered by Stress 

Loss Margin. Any request pursuant to this paragraph is subject to the Clearing 

House’s consent in its sole discretion (and the Clearing House may apply a 

lower percentage than that requested by the SwapClear Clearing Member.)

A SwapClear Clearing Member may cease paying Stress Loss Margin by giving 

not less than three (3) business days’ written notice to the Clearing House. 

Before making any request to pay or notifying the Clearing House of ceasing to 

pay Stress Loss Margin, a SwapClear Clearing Member must obtain the consent 

of the SwapClear Clearing Client(s) to which the Stress Loss Margin applies. In 

making any request pursuant to this paragraph, the SwapClear Clearing Member 

is deemed to represent that it has obtained such consent.

Where SwapClear Contracts entered into by a SwapClear Clearing Member in 

respect of a SwapClear Clearing Client which has requested to pay Stress Loss 

Margin are transferred to a Backup Clearing Member or a Receiving Clearing 

Member (including an FCM Clearing Member), such Backup Clearing Member 

or Receiving Clearing Member may be required to pay additional initial margin 

to the Clearing House in the event that it does not pay Stress Loss Margin with 

respect to the transferring SwapClear Clearing Client(s).

1.10 Tenor Basis Risk Margin Add-on

An add-on margin requirement will be applied in respect of tenor basis risk.

1.11 Intra-Day Margin Call: Collateral Management

The methods for covering intra-day margin calls are set out in Section 1.11 of Procedure 

4 (Margin and Collateral). 

1.12 Price Alignment Interest (PAI) and Price Alignment Amount Rate

The calculation of PAI and Price Alignment Amount shall use the applicable interest 

rate specified and published on the Clearing House's website.