LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

VIA CFTC Portal

7 June 2021 

Mr Christopher Kirkpatrick

Commodity Futures Trading Commission

1155 21st Street NW

Three Lafayette Centre

Washington DC 20581

Dear Mr Kirkpatrick

NDF Contract in HKD/USD currency pair

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 

Non-Deliverable Forward (“NDF”) Contracts in the USD/Hong Kong Dollar (HKD) currency pair for 

determination of whether mandatory clearing should apply.

Background

The ForexClear service currently clears NDFs on 25 currency pairs settled against USD1. The service

intends to expand the clearing eligibility to USD/HKD NDF Contracts with a maximum tenor of 2Y to 

meet Clearing Members’ demand. The planned launch date is 21 June 2021.

Factors for determination

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

data 

The FX market is fast paced, global and well established with a clear product set. The majority of FX 

transactions are short dated and volume has grown considerably over the last ten years. Total 

average daily volumes for USD/HKD are USD $233bn (Source: BIS Triennial FX Survey 2019); although 

it should be noted that the bulk of the volume on USD/HKD is currently traded as deliverable FX, with 

a small proportion being traded as non-deliverable, as further set out below. Expanding the clearing 

eligibility to non-deliverable contracts may help in increasing exposures and trading liquidity in this 

new currency pair.

The price data currently used in the ForexClear service is provided real-time directly by clearing 

members. Price data includes FX spot rates and swap points for specified tenors as well as implied 

volatility points for specified tenors and deltas for all currency pairs. 

1 https://www.lch.com/services/forexclear/what-we-clear
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

The availability of the 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 FX transactions. 

LCH will continue to leverage this existing operational capability to clear the new NDF currency pair. 

In order to prepare for the launch of this product, LCH has been performing testing, including 

capacity testing. 

Further to this, LCH have notified its Clearing Members of a number of changes to the Product 

Specific Contract Terms and Eligibility Criteria Manuals (or referred to as “Product Manuals”) 

applicable to Clearing Members that are Futures Commission Merchants (“FCM Clearing Members”) 

and non FCM Clearing Members. The changes have been submitted for self-certification to the CFTC 

and 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 

The operational capability to manage the additional NDF currency pair is already in place in LCH.

LCH expects current ForexClear Clearing Members to start clearing the new currency pairs following 

the go-live date. A subset of existing Clearing Members will be ready on the go live date and plan to 

execute a few trades. More existing Clearing Members are expected to be ready in the near future 

where volumes/open interest in the additional currency pairs are expected to increase. 

Based on the statistics of the latest Triennial Survey of the Bank for International Settlements, the 

daily average turnover of the new USD/HKD represents around 4% of the global FX market daily 

turnover, although only a very small proportion of this 4% is traded as Non-Deliverable Forwards. 

Therefore, allowing clearing of Non-Deliverable Forwards on these additional currency pairs is 

unlikely to have a significant impact on the risk profile or total resources held by the ForexClear 

service. As such, the systemic risk profile of LCH remains unchanged as a result of the new product 

offering.

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

CME Clearing offers clearing of Cash Settled Forwards in HKD/USD. LCH is not aware of other 

competitors clearing NDFs on this currency pair. 

Following the business launch, currently scheduled for 21 June 2021, the additional NDF currency 

pair will be subject to the ForexClear’s fee plan applicable to the non-deliverable segment of the 

service. The fees will differ according to the tariff chosen by Clearing Members. 
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

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 NDF Contracts in USD-HKD currency pair is in all 

material respects the same as that of the products already cleared in the ForexClear 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) 

The specifications of products eligible for clearing in the ForexClear service are set out in the LCH 

Product Manuals, which are publicly available on the LCH website (link). These will be updated with 

the specifications of the USD-HKD NDF Contract.

The participant eligibility standards for the new NDF Contract are the same as those for existing 

ForexClear Clearing Members. 

As noted above, the market data is provided real-time directly by Clearing Members.

There are no material changes within the service. In particular, there are no changes to the operational 

and risk management models. Initial Margin calculation, Variation Margin and settlement will all be in 

USD in line with the current NDF offering. The currency pair will be subject to the Liquidity Risk Margin 

(LRM) add-on and the Sovereign Risk Margin (SRM) add-on frameworks. The SRM add-on calculation 

will be calibrated accordingly to ensure it captures the specific risk associated with the HKD currency. 

In addition, ForexClear will be making updates and changes to the stress scenarios for the new 

currency pair, as per usual process for the extensions of product offering.

Under the LCH rules, the USD-HKD NDF currency pair will be considered a Non-EMTA NDF currency 

pair2. As noted above, LCH will update the following sections of the Product Manuals accordingly:

- Contract terms

- Contract eligibility criteria 

- Contract Templates

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 that LCH is required to make to the Product Manuals. Further, the updates to the Product 

Manuals have been submitted to the CFTC pursuant to §40.6(a).

2

LCH eligible currencies whose contract templates are published by the Emerging Markets Trade Association (“EMTA”) 

are considered EMTA NDF currency pairs. For all other currencies, considered Non-EMTA NDF currency pairs, LCH sets 

out the respective Contract Templates in its Rulebook and these are referred to as “Non-EMTA NDF Contract Templates”.
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

Notice of this submission under CFTC regulation §39.5(b) was given to ForexClear Clearing Members 

on 5 May 2021 and a copy of this notice is provided at Appendix A. Furthermore, this submission is 

publicly available3.

LCH intends to launch these products with its Clearing Members and clients on, or after, 21 June 2021.

Please contact me if you have any questions.

Yours sincerely

P.P.

Julian Oliver

Chief Compliance Officer

LCH Limited

3 https://www.lch.com/resources/rules-and-regulations/regulatory-responses
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

Appendix A

Notice to Clearing Members regarding the 39.5 (b) submission on HKD/USD NDF 
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

Memo

To ForexClear Clearing Members

From Loic Moreau, Head of In-Business Risk ForexClear

Date 5 May 2021

Subject Submission on USD-HKD NDF currency pair 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 

Non-Deliverable Forwards (“NDFs”) in the USD/Hong Kong Dollar (HKD) currency pair for 

determination of whether mandatory clearing should apply.

As per CFTC regulation §39.5(b)(viii), LCH is required to notify Clearing 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 may be published 

separately. 

The ForexClear service currently clears NDFs on 25 currency pairs settled against USD4. The service

intends to expand the clearing eligibility to USD/HKD NDF Contracts with a maximum tenor of 2Y to 

meet Clearing Members’ demand.

Factors for determination

 

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

data 

 

The FX market is fast paced, global and well established with a clear product set. The majority of FX 

transactions are short dated and volume has grown considerably over the last ten years. Total 

average daily volumes for USD/HKD are USD $233bn (Source: BIS Triennial FX Survey 2019); although 

it should be noted that the bulk of the volume on USD/HKD is currently traded as deliverable FX, with 

a small proportion being traded as non-deliverable, as further set out below. Expanding the clearing 

eligibility to non-deliverable contracts may help in increasing exposures and trading liquidity in this 

new currency pair.

The price data currently used in the ForexClear service is provided real-time directly by clearing 

members. Price data includes FX spot rates and swap points for specified tenors as well as implied 

volatility points for specified tenors and deltas for all currency pairs. 

4 https://www.lch.com/services/forexclear/what-we-clear
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

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 FX transactions. 

LCH will continue to leverage this existing operational capability to clear the new NDF currency pair. 

In order to prepare for the launch of this product, LCH has been performing testing, including 

capacity testing. 

Further to this, LCH have notified its Clearing Members of a number of changes to the Product 

Specific Contract Terms and Eligibility Criteria Manuals (or referred to as “Product Manuals”) 

applicable to Clearing Members that are Futures Commission Merchants (“FCM Clearing Members”) 

and non FCM Clearing Members. The changes will be submitted for self-certification to the CFTC and 

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 

The operational capability to manage the additional NDF currency pair is already in place in LCH.

LCH expects current ForexClear Clearing Members to start clearing the new currency pairs following 

the go-live date. A subset of existing Clearing Members will be ready on the go live date and plan to 

execute a few trades. More existing Clearing Members are expected to be ready in the near future 

where volumes/open interest in the additional currency pairs are expected to increase. 

Based on the statistics of the latest Triennial Survey of the Bank for International Settlements, the 

daily average turnover of the new USD/HKD represents around 4% of the global FX market daily 

turnover, although only a very small proportion of this 4% is traded as Non-Deliverable Forwards. 

Therefore, allowing clearing of Non-Deliverable Forwards on these additional currency pairs is 

unlikely to have a significant impact on the risk profile or total resources held by the ForexClear 

service. As such, the systemic risk profile of LCH remains unchanged as a result of the new product 

offering.

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

CME Clearing offers clearing of Cash Settled Forwards in HKD/USD. LCH is not aware of other 

competitors clearing NDFs on these currency pair. 

Following the business launch, currently scheduled for 21 June 2021, the additional NDF currency 

pair will be subject to the ForexClear’s fee plan applicable to the non-deliverable segment of the 

service. The fees will differ according to the tariff chosen by Clearing Members. 
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

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 NDF Contracts in USD-HKD currency pair is in all 

material respects the same as that of the products already cleared in the ForexClear 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) 

The specifications of products eligible for clearing in the ForexClear service are set out in the LCH 

Product Manuals, which are publicly available on the LCH website (link). These will be updated with 

the specifications of the USD-HKD NDF Contract.

The participant eligibility standards for the new NDF Contract are the same as those for existing

ForexClear Clearing Members. 

As noted above, the market data is provided real-time directly by Clearing Members.

There are no material changes within the service. In particular, there are no changes to the operational 

and risk management models. Initial Margin calculation, Variation Margin and settlement will all be in 

USD in line with the current NDF offering. The currency pair will be subject to the Liquidity Risk Margin 

(LRM) add-on and the Sovereign Risk Margin (SRM) add-on frameworks. The SRM add-on calculation 

will be calibrated accordingly to ensure it captures the specific risk associated with the HKD currency. 

In addition, ForexClear will be making updates and changes to the stress scenarios for the new 

currency pair, as per usual process for the extensions of product offering.

Under the LCH rules, the USD-HKD NDF currency pair will be considered a Non-EMTA NDF currency 

pair5. As noted above, LCH will update the following sections of the Product Manuals accordingly:

- Contract terms

- Contract eligibility criteria 

- Contract Templates

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 that LCH is required to make to the Product Manuals.

The updates to the Product Manuals will be submitted to the CFTC pursuant to §40.6(a) in time for 

the launch date expected to be June 21, 2021.

5

LCH eligible currencies whose contract templates are published by the Emerging Markets Trade Association (“EMTA”) 

are considered EMTA NDF currency pairs. For all other currencies, considered Non-EMTA NDF currency pairs, LCH sets 

out the respective Contract Templates in its Rulebook and these are referred to as “Non-EMTA NDF Contract Templates”.
LCH | Aldgate House | 33 Aldgate High Street | London EC3N 1EA | 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 Group Holdings Limited. Registered in England No. 4743602 Registered Office: Aldgate House, 33 Aldgate High Street, London EC3N 1EA

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

website. 

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