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

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


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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