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Company Circular No:

LCH.Clearnet Limited Circular No 3330

Date:30 July 2013
To:All LCH.Clearnet Limited FCM Clearing Members

Affiliate Treatment – Guidance for FCM Clearing Members of LCH.Clearnet Limited

LCH.Clearnet Limited (“LCH.Clearnet”) wishes to draw the attention of FCM Clearing Members to upcoming changes to the treatment of affiliates under LCH.Clearnet’s FCM Rulebook for SwapClear, ForexClear, and EnClear Services respectively.

By way of background, under CFTC Regulation, any account maintained by an FCM Clearing Member for the benefit of its affiliate is deemed to be part of the Proprietary Account of the FCM Clearing Member, rather than a client account. As a result, LCH.Clearnet’s FCM Rulebook provides today that an FCM Clearing Member’s “Proprietary Account” holds the contracts of an FCM Clearing Member and those of its affiliates.

The European Market Infrastructure Regulation (“EMIR”) recognises two categories of participants who can be involved in the clearing of contracts – Clearing Members and their clients. Under EMIR a Clearing Member’s House Account can only contain the business of the Clearing Member itself.

LCH.Clearnet therefore would like to provide early notice to its FCM Clearing Members that the affiliate service will cease to be available for future clearing arrangements under the FCM Rulebook. (Note that trades submitted by a branch, which is part of the same legal entity as the clearing member, are automatically booked into the proprietary account.)

The current affiliate clearing arrangements for FCM Clearing Members will remain in place until the date on which the revisions to the FCM Rulebook for EMIR come into force. This is expected to be in late 2013 or early 2014, and the exact timing of which will be the subject of further communications.

An affiliate of an FCM Clearing Member that believes it must clear via its FCM Clearing Member is invited to contact its Account Manager of LCH.Clearnet’s SwapClear, ForexClear or EnClear services to discuss next steps.

Clearing Members will need to take their own legal advice on whether or how to clear Affiliate business and comply with EMIR. These changes will not apply to LCH.Clearnet LLC, where the affiliate service will continue to be available.

Any questions concerning this notice should be directed to your usual business representative at LCH.Clearnet.