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Company Circular No:LCH.Clearnet Ltd Circular No 3176
Date:31 July 2012
To:All LCH.Clearnet Ltd Members

Changes to interest structure of margin collateral in LCH.Clearnet Limited

LCH.Clearnet Limited (LCH.Clearnet) will be making some important changes to the interest structure of cash based margin collateral to take account of the extended negative rates environment. 

Negative rates of return

Due to current market conditions, the yield on the types of investments which adhere to our conservative investment approach have fallen significantly, some to below zero.   Where LDR is less than zero, we will pass on the negative rate to clearing members.

We anticipate that negative rates will apply from 8 August 2012.

Changes to calculation of interest compensation for cash margins

In response to clearing member feedback, we are changing the way that we establish the rates of return paid on cash deposited.  The LCH.Clearnet interest rate will continue to be entitled LDR, but the calculation methodology will change to be based upon market published rates minus 30 bps. We will continually review this against market conditions.

The calculations for the Client Deposit Rate (CDR), the rate at which LCH.Clearnet pays interest on credit cash balances for Swap Clear Client financial accounts, will not change at this time. 

Changes to LCH.Clearnet Group’s pricing policy

Over the next few months we will be reviewing our Group pricing structure across both cash and non-cash collateral with a view to introducing a more risk-based approach. We will liaise with our clearing members on a timetable for implementation. 

Operational impact

Clearing members should verify the impact that these changes will have when interfacing with LCH.Clearnet’s member reporting and banking infrastructure.

Information on group fees can be found at http://www.lchclearnet.com/fees/ltd/

Should you have any questions on this, please contact:

Andrew Howat, Group Head of CaLM                                         + 44 (0) 207 426 7674
Nick Garnish, Group COO of CaLM                                            + 44 (0) 207 426 8326
Richard Heyman, Director, Head of Client Management               + 44 (0) 207 426 7293

Alternatively, email – CaLM@lchclearnet.com or contact your relationship manager.