LCH limits substitution to tackle quarterly collateral flight

CCP clamps down on bond-for-cash switches driven by reporting and quarter-end repo spikes

money-annual-report
The switches can be used to make balance sheets appear healthier around quarter-end reporting dates

LCH has clamped down on collateral switches designed to take advantage of a spiking repo rate – a practice that has been described as “window dressing” bank balance sheets for quarter-end reporting and is believed to have raised reinvestment costs for the clearing house.

In a notification released on June 16, the central counterparty (CCP) said that from June 23 to June 30 it will require up to five business days’ notice for substitution of more than £50 million ($64 million) of collateral

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