Change in margining methodology for freight options (CTC, PTC, STC), physical codes (CTO, PTO, STO)

LCH.Clearnet Ltd will amend the London SPAN margining methodology for freight option contracts, CTO, PTO & STO taking effect from 22 March 2010. A more detailed explanation of the change can be found in Appendix 1.

The change will result in freight options positions being shifted by the same amount as their discounted futures counterparties when calculating scenarios in London SPAN. Currently, the shifts of options positions are overstated in discounted tiers which generate either overstated or understated initial margin values.

The change of methodology will be incorporated into the risk arrays within the EnClear London SPAN parameter file sent by LCH.Clearnet from 22 March 2010 onwards. No technological change need to be taken by members. A more detailed explanation is incorporated in Appendix 1.

The new margining methodology will be reflected in 23 March 2010 margin call. 

If you have any questions relating to this circular, please do not hesitate to contact Isabella Kurek-Smith on +44 20 7426 7460, [email protected] or Tao Chen on +44 20 7426 7984, [email protected]

Yours sincerely

Isabella Kurek-Smith
Director, Head of Energy and Freight Markets
Commercial Services