LCH to cut jump-to-default margin for cleared CDS

Move could bring margin for cleared CDS closer to bilateral trades, but mismatch remains

Shrinking-margin-differential

UK clearing house LCH is preparing to change the way it sets margin for jump-to-default risk in credit default swaps, a move that could shrink the margin differential between cleared and bilateral trades, and lay the ground for clearing of contracts referencing the subordinated debt of financial firms.

Jump-to-default – a measure of loss incurred on a CDS if the reference entity declares a credit event – is part of margin models at both LCH and rival clearing house Ice. The risk is not included

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