LCH 

VIA EMAIL 

The Markets' 

Partner 

28 November 2017 

Mr Christopher Kirkpatrick 

Commodity Futures Trading Commission 

115 21st Street NW 

Three Lafayette Centre 

Washington DC 20581 

Dear Mr Kirkpatrick 

SwapClear 015-'IBOR 

Pursuant to CFTC regulation §39.S(b), LCH Limited ("LCH"), a derivatives clearing organization 

("DCO") registered with the Commodity Futures Trading Commission (the "CFTC"), is submitting 

information regarding OIS-'IBOR basis swap product in AUD (AONIA v BBA) and in EUR (EURIBOR v 

EON IA) for the CFTC determination of whether mandatory clearing should apply. 

Background 

SwapClear currently clears the OIS-'IBOR basis swap product in GBP (LIBOR v SONIA) and USO (LIBOR 

v Fed Funds). Both legs of these swaps are floating, wit h one leg set on the standard OIS index, and 

the other leg set on the LIBOR or currency specific equivalent, such as Euribor (hence the naming 

convention OIS-'IBOR). The new products are: 

• AUD AONIA v BBA 

•EUR EURIBOR v EONIA 

SwapClear currently clears vanilla swaps in all currencies and indices listed above. The maximum 

eligible tenor for 015-'IBOR trades will be the minimum value permitted for vanilla IRS or OIS values. 

In all cases presented, the limiting tenor is from the OIS leg. 

CFTC factors for determination 

The table below shows SwapClear YTD clearing volumes (in USO) as of 5th October 2017. The basis 

swaps volume is comprised of IBOR-IBOR basis swaps, and 0 15-IBOR in USO and GBP. In particular, it 

can be seen that the volume of basis swaps in EUR is significantly lower than in USO or GBP, which in 

large part is due to t he absence of OIS-IBOR clearing in EUR. 

LCH I Aldgate House I 33 Aldgate High Street I London EC3N lEA I T: +44 (0)20 7426 7000 I F: +44 (0)20 7426 7001 I lch.com 

LCH Group Holdings Limited I LCH Limitt>d I Banqu~ Centrale de Compensation I LCH.Clearnet LLC 

LCH Group Holdings Limited Registered in Englar.d No. 47 \3602 REgistered Office: Aldg;,<e Haus<>, 33 Aldgate High StrPet, London EC3N 1EA 
LCH 

IRS {IBOR v 

Fixed) 

OIS(v 

Fixed) 

Basis 

Zeroes 

FRAs 

VNS 

Inflation 

The Markets' 

Partner 

74,047,511,669,024 

145,097,649,865,11 

2 

14,202,965, 797,225 

52, 735, 701,972 

117,518,661,935,71 

6 

239,626,420,050 

777,256,299, 754 

13, 717,532,974,41 68,033, 746,152,62 9,123,109,414,268 6 0 

21,488,682,512,50 57,450,343,907,25 13,089,132,725,69 

3 5 3 

1,911,244,557,151 660,973,425,514 536,693,618,512 

147,082,315,529 114,214,280,996 1,248,770,000 

18,313,287 ,346,24 58,371,421, 752,84 0 8 9 

55,827,842,308 144,654,843, 757 1,897, 721,991 

696,562,749,931 1,049,388,248,534 0 

For the OIS-'IBOR basis swaps in bot h AUD and EUR the market data to price the instruments is 

already used in SwapClear as both the OIS and IBOR markets in these currencies are cleared. The 

additional products are identical t o a synt hetic pair of exist ing trades (IBOR v fixed and OIS v fixed 

where the fixed legs are netted out). The data is readily available and consumed from conventional 

price sources, e.g. Bloomberg and Reuters. 

The availability of rule framework, capacity, operational expertise and resources, and credit support 

infrastructure to clear the contract on terms that are consistent with the material terms and trading 

conventions on which the contract is then traded 

LCH has a well-developed rule framework and support infrastructure for clearing OIS. LCH intends to 

leverage this existing operational capability when extending its offering to the OIS-'IBOR basis swaps 

in AUD and EUR. 

In order to prepare for the launch of this product, LCH will perform test ing to ensure that it is able to 

clear these products in a manner which is consistent with the terms on which they are traded . 

Further to this, LCH will notify it s Clearing Members of a number of minor rule changes which will be 

made in order to support the clearing of the OIS-'IBOR basis swaps in AUD and EUR. The rule 

changes will be certified with the CFTC and be made ava ilable on the LCH website. 

The effect on mitigation of systemic risk, taking into account the size of the market for such contract 

and the resources of the DCO available to clear the contract 

OIS-'IBOR basis swaps in AUD and EUR do not introduce any novel risks to LCH, as the operational 

capability t o manage the product is already in place. 

SwapClear current ly clears vanilla swaps in all currencies and indices in scope. The two legs of the 

trade are standard and as per the same legs on a standard swap. This allows for a complete 

replication of the risk of the basis swap trade to be performed with two simple swaps, one with fixed 

against LIBOR or equivalent, the other fixed versus OIS. The two replicating trades are eligible for 

clearing in SwapClear, so the basis swap can currently be constructed in a synthetic way. As such, the 

systemic risk profile of LCH remains unchanged as a result of the new basi s swaps offering. 

LCH I Aldgate House I 33 Aldgate High Street I London EC3N lEA I T: +44 (0)20 7426 7000 I F: +44 (0)20 7426 7001 I !ch.com 

LCH Group Holdings Limited I LCH Limited I Banque Centrale de Compens1tion I LCH.Clearnet LLC 

LCH Group Hold1nr,s Limited. Registered in England No. 4743602 Regist~red Office: Aldgate House, 3'< Aldgate High Street, London EC3N lEA 
LCH The J\1ar1'ets' 

Partner 

The effect on competition, including appropriate fees and charges applied to clearing 

The risk and pricing of a basis swap is identical to that on a pair of swaps. The new offering allows 

Clearing Members and clients to clear the risk in a single trade which prevents the duplication of 

notional. ASX Clear already clears OIS-'IBOR basis swaps denominated in AUD. 

LCH's fees and cha rges for the above product wi ll be in line with those charged for existing 

SwapClear contracts. 

The existence of reasonable legal certainty in the event of the insolvency of the relevant DCO or one or 

more of its clearing members with regard to the treatment of customer and swap counterparty 

positions, funds and property 

The level of legal certainty around the clearing of the OIS-'IBOR basis swaps is in all material respects 

the same as that of the products already cleared in the SwapClear service at LCH. 

Insofar as legal certainty in the event of the insolvency of the DCO is concerned, LCH would be 

wound up under English law. 

Further information §39.S{b}(iii-viii) 

Product terms for t he OIS-'IBOR basis swaps are market standard. The trades are executed under the 

market standard 2008 ISDA Derivatives Definitions1 and are covered by the Financial products 

Markup Language (FpML) standard, which is a protocol used for sharing information on derivatives 

and other products. 

The participant eligibility standards for new contracts in scope are the same as those for existing 

SwapClear Clearing Members. 

There are no additional price sources required as the product wil l be valued using prices that have 

already been added to t he price sources already used by LCH. 

No material revisions or adjustments to the existing risk models/parameters and/or liquidity 

management framework are required for LCH to offer the clearing of the products. As SwapClear 

already clears vanil la swaps in these currencies and indices only minor configuration changes are 

required from both an operational and risk management perspective to go live. As many Clearing 

Members already have positions t hat are inter-index spreads, t he availabi lity of a basis swap as risk 

neutralisation t ool fol lowing a default will be beneficial from a risk management perspective. 

LCH is making a number of minor changes to its Rulebook to enable clearing of the new the OIS-

'IBOR basis swaps in t he following sections: 

• FCM Product Specific Contract Terms and Eligibi lity Crit eria Manual 

• Product Specific Contract Terms and Eligibility Criteria Manual 

1 http://www.isda.org/publications/pdf/2008-inflation-d efs.pdf 

LCH I Aldgate House I 33 Aldgate High Street I London EC3N lEA I T: +44 (0)20 7426 7000 I F: +44 {0)20 7426 7001 I !ch.com 

LCH Group Holding~ Limited I LCH Limited I eanque Centrale de Compensation I LCH.Clearnet LLC 

LCH Group Holdings Limited. Registered in Engl<ind No 4743602 Registered Office: Aldgatt House, 33 Aldgate: High Street, London EC3N lEA 
LCH The Markets' 

Partner 

LCH engages its Clearing Members in the design and testing of new products at an early stage, 

through regular meetings and working groups. Clearing Members have been formally notified of the 

changes which LCH is required to make to its Rulebook. 

The rule changes were submitted for self certification to the CFTC pursuant to §40.6{a) on 13 

November 2017, following consultation with LCH Clearing Members. 

Notice of this submission under CFTC regulation §39.S(b) was given to SwapClear Clearing Members 

on 26 October 2017 and a copy of this not ice is provided at Appendix A. Furthermore, this 

submission is publicly available at: http://www.lch.com/rules-regulations/regulatory-responses. 

LCH looks forward to working with Clearing Members and the CFTC in the determination of clearing 

requirements. Please do not hesitate to contact me regarding any questions raised by this 

information. 

Should you have questions please contact me at John.Horkan@lch.com. 

]!±~ely /iv. ~b~ 

..... ~h n Horkan 

Group C~ief Operating Officer 

LCH Limited 

cc. Parisa Abadi 

LCH I Aldgate House I 33 Aldgate High Street I London EC3N lEA I T: +44 (0)20 7426 7000 I F: +44 (0)20 7426 7001 I !ch.com 

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

LCH Group Holdings Limited. Registered in England No. 1743602 R,,gistered Cff1ce· Aldgate House, 33 Aldgate High Stre~t. London EC3N lEA 
LCH The l\larkets' 

Partner 

Appendix A 

LCH I Aldgate House I 33 Aldgate High Street I L.ondon EC3N lEA I T: +44 (0)20 7426 7000 I F: +44 (0)20 7426 7001 J lch.com 

LCH Group Holdings Limited I LCH Limited I Banque Ccntrale dP Compensation I LCH.Cle1rnet LLC 

LCH Group Holdings Limited. Rcgistued in England No 4743602 r-earstered Ctfice Aldgate House, 33 Aldgate Hiah Street, London EC3N 1EA 
To SwapClear Clearing Members

From David Horner, Head of In-Business Risk Rates and FX Derivatives 

Date 26 October 2017

Subject SwapClear OIS-‘IBOR submission for determination of clearing requirements 

Pursuant to CFTC regulation §39.5(b), LCH Limited (LCH), a derivatives clearing organization (DCO) 

registered with the Commodity Futures Trading Commission (the CFTC), is submitting OIS-‘IBOR basis 

swaps in AUD and Euro EUR for determination of whether mandatory clearing should apply. 

As per CFTC regulation §39.5(b)(viii), LCH is required to notify members of its submission. This note does 

not constitute a notification that the products are live for clearing. A notice announcing the live date and 

arrangements for the formal product launch will be published separately. 

Factors for determination

The existence of significant outstanding notional exposures, trading liquidity, and adequate pricing data 

SwapClear currently clears the OIS-‘IBOR basis swap product in GBP (LIBOR v SONIA) and USD (LIBOR v Fed 

Funds). Both legs of these swaps are floating, with one leg set on the standard OIS index, and the other leg 

set on the LIBOR or currency specific equivalent, such as Euribor (hence the naming convention OIS-

‘IBOR). The products are: 

• AUD AONIA v BBA 

• EUR EURIBOR v EONIA 

SwapClear currently clears vanilla swaps in all currencies and indices listed above. The maximum eligible 

tenor for OIS-‘IBOR trades will be the minimum value permitted for vanilla IRS or OIS values. In all cases 

presented, the limiting tenor is from the OIS leg (for some currencies the maximum maturity of for LIBORlinked cleared swaps is longer than for OIS). 

The table below shows SwapClear year to date clearing volumes (in USD) as of 5th October 2017. The basis 

swaps volume is comprised of IBOR-IBOR basis swaps, and OIS-IBOR in USD and GBP. In particular, it can 

be seen that the volume of basis swaps in EUR and AUD is significantly lower than in USD or GBP, which in 

large part is due to the absence of OIS-IBOR clearing in EUR.

USD GBP EUR AUD

IRS (IBOR v 

Fixed) 74,047,511,669,024 13,717,532,974,416 68,033,746,152,620 9,123,109,414,268

OIS (v Fixed) 145,097,649,865,112 21,488,682,512,503 57,450,343,907,255 13,089,132,725,693

Basis 14,202,965,797,225 1,911,244,557,151 660,973,425,514 536,693,618,512

Zeroes 52,735,701,972 147,082,315,529 114,214,280,996 1,248,770,000

FRAs 117,518,661,935,716 18,313,287,346,248 58,371,421,752,849 0
VNS 239,626,420,050 55,827,842,308 144,654,843,757 1,897,721,991

Inflation 777,256,299,754 696,562,749,931 1,049,388,248,534 0

For the OIS-‘IBOR basis swaps in both AUD and EUR the market data to price the instruments is already 

used in SwapClear as both the OIS and IBOR markets in these currencies are cleared. The additional 

products are identical to a synthetic pair of existing trades (IBOR v fixed and OIS v fixed where the fixed 

legs are netted out). The data is readily available and consumed from conventional price sources, e.g. 

Bloomberg and Reuters.

The availability of rule framework, capacity, operational expertise and resources, and credit support 

infrastructure to clear the contract on terms that are consistent with the material terms and trading 

conventions on which the contract is then traded 

LCH has a well-developed rule framework and support infrastructure for clearing OIS. LCH intends to 

leverage this existing operational capability when extending its offering to the OIS-‘IBOR basis swaps in

AUD and EUR. 

In order to prepare for the launch of this product, LCH will perform testing to ensure that it is able to clear 

these products in a manner which is consistent with the terms on which they are traded.

Further to this, LCH will notify its Clearing Members of a number of minor rule changes which will be 

made in order to support the clearing of the OIS-‘IBOR basis swaps in AUD and EUR. The rule changes will 

be certified with the CFTC and be made available on the LCH website. 

The effect on mitigation of systemic risk, taking into account the size of the market for such contract and 

the resources of the DCO available to clear the contract 

OIS-‘IBOR basis swaps in AUD and EUR do not introduce any novel risks to LCH, as the operational 

capability to manage the product is already in place. 

SwapClear currently clears vanilla swaps in all currencies and indices in scope. The two legs of the trade 

are standard and as per the same legs on a standard swap. This allows for a complete replication of the 

risk of the basis swap trade to be performed with two simple swaps, one with fixed against LIBOR or 

equivalent, the other fixed versus OIS. The two replicating trades are eligible for clearing in SwapClear, so 

the basis swap can currently be constructed in a synthetic way. As such, the systemic risk profile of LCH

remains unchanged as a result of the new basis swaps offering.

The effect on competition, including appropriate fees and charges applied to clearing 

The risk and pricing of a basis swap is identical to that of a pair of swaps. The new offering allows Clearing 

Members and clients to clear the risk in a single trade which prevents the duplication of notional. ASX 

Clear already clears OIS-‘IBOR basis swaps denominated in AUD.

LCH’s fees and charges for the above product will be in line with those charged for existing SwapClear 

contracts. 
The existence of reasonable legal certainty in the event of the insolvency of the relevant DCO or one or 

more of its clearing members with regard to the treatment of customer and swap counterparty 

positions, funds and property

The level of legal certainty around the clearing of the OIS-‘IBOR basis swaps is in all material respects the 

same as that of the products already cleared in the SwapClear service at LCH.

Insofar as legal certainty in the event of the insolvency of the DCO is concerned, LCH would be wound up 

under English law. 

Further information §39.5(b)(iii-viii)

Product terms for the OIS-‘IBOR basis swaps are market standard. The trades are executed under the 

market standard 2008 ISDA Derivatives Definitions1and are covered by the Financial products Markup 

Language (FpML) standard, which is a protocol used for sharing information on derivatives and other 

products. 

The participant eligibility standards for these new contracts are the same as those for existing SwapClear 

Clearing Members. 

There are no additional price sources required as the product will be valued using prices that have already 

been added to the price sources already used by LCH.

No material revisions or adjustments to the existing risk models/parameters and/or liquidity management 

framework are required for LCH to offer the clearing of the products. As SwapClear already clears vanilla 

swaps in these currencies and indices only minor configuration changes are required from both an 

operational and risk management perspective to go live. As many Clearing Members already have 

positions that are inter-index spreads, the availability of a basis swap as risk neutralisation tool following a 

default will be beneficial from a risk management perspective.

LCH will make a number of minor changes to its Rulebook to enable clearing of the new the OIS-‘IBOR 

basis swaps in the following sections:

 FCM Product Specific Contract Terms and Eligibility Criteria Manual

 Product Specific Contract Terms and Eligibility Criteria Manual

The rule changes will be submitted to the CFTC pursuant to §40.6(a), following consultation with LCH 

Clearing Members. 

LCH engages its Clearing Members in the design and testing of new products at an early stage, through 

regular meetings and working groups. Clearing Members have been formally notified of the changes 

which LCH is required to make to its Rulebook.

Further information will form part of the full §39.5(b) filing which will be publicly available on the LCH 

website. 

 

1

http://www.isda.org/publications/pdf/2008-inflation-defs.pdf
LCH looks forward to working with Clearing Members and the CFTC in the determination of clearing

requirements. Please do not hesitate to contact me regarding any questions raised by this information.