SwapClear Rules and Regulations Update 

The Rules of LCH.Clearnet Limited (“LCH.Clearnet”), a Recognised Clearing House regulated by the Financial Services Authority (“FSA”) and a Derivatives Clearing Organization registered with the Commodity Futures Trading Commission (“CFTC” or “Commission”), will be amended¹ to reflect rule changes introduced by LCH.Clearnet resulting from CFTC Regulations with effect from 1 May 2012 with further amendments taking place on 7 May 2012.

The changes will affect SwapClear Clearing Members and FCM Clearing Members.

LCH.Clearnet will update the Rules and Regulations to reflect that LCH.Clearnet’s participation requirements shall set forth capital requirements that are based on objective, transparent, and commonly accepted standards that appropriately match capital to risk. Capital requirements shall be scalable to the risks posed by Clearing Members. Additionally, LCH.Clearnet shall not set a minimum capital requirement of more than USD 50 million for any person that seeks to become a Clearing Member in order to clear swaps.

The SwapClear Default Management Process will be included within the LCH.Clearnet rulebook rather than being set out in a private agreement and will also include new incentives and default management mechanisms.

In addition, changes to the LCH.Clearnet default fund and the creation of the SwapClear segregated default fund will be introduced in line with the successful ballot.

Finally, revised reporting and margining requirements will be introduced to cater for and in accordance with regulatory change. In particular, FCM Clearing Members should note the new requirement that customers do not withdraw funds from their accounts with LCH.Clearnet unless the net liquidating value plus the margin deposits remaining in a customer’s account after such withdrawal are sufficient to meet the customer initial margin requirements held in such customer’s account which are cleared by LCH.Clearnet. Furthermore, FCM Regulation s.10 (o) will be applicable to FCMs and requires that FCM Clearing Members collect customer initial margin from their customers, for non-hedge positions, at a level that is greater than 100 percent of the derivatives clearing organization’s usual initial margin requirements. The initial published rate will be 10% above the usual requirement. FCM Clearing Members will not be required to pay this additional margin to LCH.Clearnet but rather use it as a cushion in relation to future adverse market movements.

The changes to the Rules and Regulations of LCH.Clearnet will take effect on 1 May 2012 with further amendments on 7 May 2012. A detailed description of the amendments of the Rules and Regulations of LCH.Clearnet’s SwapClear Service can be found at the following links:

1 May 2012:

Amendments to the SwapClear Service – Segregated Default Fund, Changes to DMP and Membership criteria

7 May 2012:

Amendments to LCH.Clearnet Limited’s Rules and Regulations to Reflect Changes to Comply with Incoming CFTC Regulations

Clearing Members are encouraged to make themselves familiar with the rule amendments coming into effect on 1 May 2012 and 7 May 2012.

Any questions concerning this Member Circular should be directed to the Membership Team at LCH.Clearnet

Tel +44 207 426 7949

E-mail [email protected]

¹ Subject to final regulatory approval