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Originating department:Commercial Services
Company Circular No:LCH.Clearnet Ltd Circular No 3042
Service Circular No:SwapClear Circular No 075
Date:02 December 2011
To:All LCH.Clearnet Limited SwapClear Clearing Members

SwapClear Enhancement in Valuation Methodology (Variation Margin Calculation)

As part of SwapClear’s scheduled enhancement programme and to ensure the most accurate valuation for risk management purposes, LCH.Clearnet Limited will, as of 05 December 2011, be using single currency basis adjusted (“Tenor”) curves that are fully calibrated to OIS discount curves to correctly determine the associated cash collateral when performing variation margin calculations.

Extensive consultations with SwapClear members indicated that cleared interest rate swap portfolios should be discounted according to an OIS curve rather than a Libor curve, referred to as Discount Risk. This ensures that LCH.Clearnet will be valuing according to market in the event of a SwapClear member default, when the majority of bids for the auction portfolio will be on this basis.

Accordingly, LCH.Clearnet will be enhancing the valuation methodology for EUR, GBP, JPY and USD portfolios across the SwapClear membership.

This enhancement in valuation methodology is necessary to ensure LCH.Clearnet reflects accurate valuations of its members exposures and hence mitigate the risk arising.

Method / Timeline

All variation margin calculations will be automatically updated to reflect the enhancement in valuation methodology.

Please do not hesitate to contact David Stanley or Lois Blazy (or your usual SwapClear contact) if you require any further details.

David Stanley

Lois Blazy

Account Executive 

Commercial Services



LCH.Clearnet Ltd

LCH.Clearnet Ltd

+44 (0)207 426 7507 

+44 (0)207 426 7452