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LCH are worried I think about not getting the Fannie Mae and Freddie Mac business and using scare tactics.The chances of a clearing party going bankrupt when only clearing IRS is small especially as both buy and sell sides are putting up capital.And it's hard to see the FHFA backed Fannie and Freddie defaulting.
Interesting that both clearing companies LCH and IDCG are using the same Razor Risk software for risk management.Makes this issue a margin call and clearly LCH are worried about the new competition.
Posted by: Alan Davison
Alan: The chances of a clearing party going bankrupt when only clearing IRS is small
Bill: Unfortunate for Lehman - not something anyone planned, but contradicts your statement.
Alan: Razor used for IM
Bill: Whilst LCH have the Razor software, it takes no part in calculating the Initial Margin amounts for SwapClear. LCH use proprietary software to achieve this, using their own models.
Alan: LCH & IDCG both use Razor
Bill: The underlying IM models are different, IDCG is using SPAN, LCH uses PAIRS (a variety of VaR) with a full 5 year historic simulation.
What would be interesting is to know how standards for margin calculations are going to be arrived at, globally, and how they are effectively measured, monitored and enforced. Much like Basle 1 & 2 were global standards, they didn't deliver the capital requirements to save Lehman.
Posted by: Bill Hodgson
LCH.Clearnet CEO calls rival 'reckless' as Fannie, Freddie clearing battle heats up
8th September 2015, London
RiskHedge 24th September 2015, London
Liquidity & funding Risk, 29th-30th September 2015, London
New York, 9 & 10 Sept 2015
Cambridge, 23 - 25 September 2015
New York 30 Sept & 1 Oct 2015
This report covers the specific technologies required for firms to improve their ORM processes.
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