Management of Sovereign Credit Risk for RepoClear Service  

Dear RepoClear Member,

In accordance with the Sovereign Credit Risk Framework and in response to the yield differential of 10 year Portuguese government debt against a AAA benchmark, LCH.Clearnet Ltd has revised the risk parameters for Portuguese government bonds cleared through the RepoClear service.  The additional margin required for positions of Portuguese government bonds will consequently be increased from 15% to 25% for long positions; this amount will be adjusted for the current bond price*.  Short positions will pay a proportionately lower margin.

1. This decision is based solely on publicly available yield spread data and in no way represents a forward looking market view. LCH.Clearnet will continue to monitor yield spreads closely and keep the parameters under close review in accordance with the Sovereign Credit Risk Framework.

2. The additional margin will be reflected in a margin call on Thursday 21 April 2011.

3. For further information please contact either Tom Chapman ([email protected]) +44 207 426 6338 or Lianne Arnold ([email protected]) +44 207 426 7376 
   

Chris Jones
Executive Director and Head of Risk Management

 
* The impact of bond price can be material. For example, the effective multiplier applied to a trade with a current price of 70 would be approximately 16% of nominal value.