Acceptable Collateral Haircut Review

1. The LCH.Clearnet Limited Risk Management department has undertaken a review of the haircuts applied to member margin collateral.

2. Changes to the haircuts resulting from this review will be made effective from Monday 6 June 2011 and can be viewed at: Haircuts applicable from 6 June 2011 

3. This circular supersedes LCH.Clearnet Limited Circular No 2790 dated 23 February 2011.

4. Members should be aware that the provisions of the Sovereign Risk Framework (SRF), as noted in LCH.Clearnet Limited Circular No 2692 dated 5 October 2010, apply to margin collateral. For reference, LCH.Clearnet Limited considers a spread for 10-year bonds of 450 basis points over the 10-year AAA benchmark to be indicative of significant additional sovereign credit risk and would apply an additional haircut at this level of 15%.  Further increased haircuts would apply if spreads continued to deteriorate. 

   The SRF reacts solely to observable yield spread data and in no way represents a forward looking market view.

5. LCH.Clearnet Limited continues to reserve the right to use its discretion in all circumstances and, in particular, around areas of specific concentration in securities received as margin collateral, including ‘wrong-way’ risk.

6. Details of the LCH.Clearnet Limited Acceptable Collateral list can be found on the LCH.Clearnet Limited website (www.lchclearnet.com) by selecting ‘Risk Management’ and ‘LCH.Clearnet Limited’. Details can then be found under the ‘Collateral Management’ section. Please note that the website will continue to display existing haircuts applicable until 6 June when it will be updated with the new details.

7. Members seeking further information in relation to this Circular or confirmation of eligibility should contact one of the following:

Christopher Jones
Executive Director, Head of Risk Management