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

9 September 2020

Mr Christopher Kirkpatrick

Commodity Futures Trading Commission

115 21st Street NW

Three Lafayette Centre

Washington DC 20581

Dear Mr Kirkpatrick

ILS Swaps

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

Israeli New Shekel (ILS) based swaps for determination of whether mandatory clearing should apply.

Background

Israel has a relatively small but active OTC market for interest rate derivatives, with participation 

from both international and local participants. LCH proposes to add ILS to the eligible product set for 

clearing, with the eligible products representing only the most liquid of the market structures. The 

products will use ILS as a deliverable currency, with Variation Margin passed through in ILS, and 

cashflows settled in ILS. The set of eligible margin products and currencies will remain unchanged, 

and ILS will not be permitted for posting of Initial Margin. 

The proposed IRS product for clearing is one with a fixed leg against a TELBOR 3M floating leg. In 

addition to the vanilla swap, the proposed scope includes Variable Notional, Zero Coupon and 

Compounding variants. Maximum Swap eligibility is set at 11Y (formally as 4,050 days).

For FRAs, only contracts versus the TELBOR 3M rate will be eligible for clearing. Maximum FRA 

eligibility is set at 3.25Y (formally as 1,225 days).

Factors for determination

 

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

data 

Based on the statistics of the latest Triennial Survey of the Bank for International Settlements1, the 

daily average turnover in ILS represents less than 1% of that in USD denominated OTC interest rate 

swaps in the overall market. All market data is from existing sources i.e. Bloomberg and Reuters using 

the most liquid (industry standard) instruments at each tenor point. 

1 https://www.bis.org/statistics/rpfx19.htm?m=6%7C381%7C677
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 interest rates swaps. 

LCH intends to leverage this existing operational capability when extending its offering to ILS swaps 

and FRAs. 

In order to prepare for the launch of these products, LCH will perform testing to ensure that it is able 

to clear them 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 changes to the procedure 

documents, which will be made in order to support the clearing of the products. The 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 

ILS based products do not introduce any novel risks to LCH, as the operational capability to manage 

the product are already in place. 

LCH expects current SwapClear Clearing Members to start clearing ILS Swaps and FRAs, once the 

service is live. 

Based on the statistics of the latest Triennial Survey of the Bank for International Settlements2, the 

introduction of ND IRS eligibility is unlikely to have a significant impact on the risk profile or total 

resources held by the SwapClear 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 

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

contracts. No material impact.

 

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 ILS contracts 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) 

2 https://www.bis.org/statistics/rpfx19.htm?m=6%7C381%7C677
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

Product terms for ILS Swaps and FRAs are market standard and follow 2006 ISDA Definitions and are 

also part of the Financial products Markup Language (FpML) standard (specifically 

http://www.fpml.org/coding-scheme/floating-rate-index published on 21st December 2017), which is 

a protocol for sharing information on derivatives and other products. 

The participant eligibility standards for ILS are the same as those for existing SwapClear Clearing 

Members. 

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

are required for LCH to offer the clearing of these products. 

No changes are needed to the default rules; however, the procedures and product terms and eligibility 

manuals will be updated in order to show ILS based trades as eligible. The amendments will be 

submitted to the CFTC pursuant to §40.6(a), following notification to LCH’s 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.

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

on 24 August 2020 and a copy of this notice is provided at Appendix A. Furthermore, this submission 

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

LCH intends to launch these products with its Clearing Members and clients no earlier than 14 

September 2020.

Should you have questions please contact me.

Yours sincerely

Julian Oliver

Chief Compliance Officer

LCH Limited
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 of this submission provided to SwapClear 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

Memo

To SwapClear Clearing Members

From David Horner, Head of In-Business Risk Rates 

Date 24 August 2020

Subject Israeli New Shekel 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 Israeli New Shekel (ILS) based 

swaps and FRAs 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. 

Israel has a relatively small but active OTC market for interest rate derivatives, with participation from both 

international and local participants. LCH proposes to add ILS to the eligible product set for clearing, with the 

eligible products representing only the most liquid of the market structures. The products will use ILS as a 

deliverable currency, with Variation Margin passed through in ILS, and cashflows settled in ILS. The set of 

eligible margin products and currencies will remain unchanged, and ILS will not be permitted for posting of 

Initial Margin. 

The proposed IRS product for clearing is one with a fixed leg against a TELBOR 3M floating leg. In addition to 

the vanilla swap, the proposed scope includes Variable Notional, Zero Coupon and Compounding variants. 

Maximum Swap eligibility is set at 11Y (formally as 4,050 days).

For FRAs, only contracts versus the TELBOR 3M rate will be eligible for clearing. Maximum FRA eligibility is set 

at 3.25Y (formally as 1,225 days).

Factors for determination

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

Based on the statistics of the latest Triennial Survey of the Bank for International Settlements3, the daily 

average turnover in ILS represents less than 1% of that in USD denominated OTC interest rate swaps in the 

overall market. All market data is from existing sources i.e. Bloomberg and Reuters using the most liquid 

(industry standard) instruments at each tenor point. 

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 interest rates swaps. LCH 

intends to leverage this existing operational capability when extending its offering to ILS swaps and FRAs. 

3 https://www.bis.org/statistics/rpfx19.htm?m=6%7C381%7C677
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

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

them 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 changes to the procedure 

documents, which will be made in order to support the clearing of the products. The 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 

ILS based products do not introduce any novel risks to LCH, as the operational capability to manage the 

product are already in place. 

LCH expects current SwapClear Clearing Members to start clearing ILS Swaps and FRAs, once the service is live. 

Based on the statistics of the latest Triennial Survey of the Bank for International Settlements4, the 

introduction of ND IRS eligibility is unlikely to have a significant impact on the risk profile or total resources 

held by the SwapClear 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 

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

contracts. No material impact.

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 ILS contracts 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 ILS Swaps and FRAs are market standard and follow 2006 ISDA Definitions and are also part 

of the Financial products Markup Language (FpML) standard (specifically http://www.fpml.org/codingscheme/floating-rate-index published on 21st December 2017), which is a protocol for sharing information on 

derivatives and other products. 

The participant eligibility standards for ILS are the same as those for existing SwapClear Clearing Members. 

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

required for LCH to offer the clearing of these products. 

No changes are needed to the default rules; however, the procedures and product terms and eligibility 

manuals will be updated in order to show ILS based trades as eligible. The amendments will be submitted to 

the CFTC pursuant to §40.6(a), following notification to LCH’s Clearing Members. 

4 https://www.bis.org/statistics/rpfx19.htm?m=6%7C381%7C677
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

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 filing which will be publicly available on the LCH website. 

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.