IM calls rocket at LCH’s repo service in Q3

€GCPlus, the clearing service for tri-party repo run by LCH SA, witnessed a surge of activity in the three months to end-September 2019.

The maximum aggregate initial margin call across the 11 members was €462 million ($516 million) in Q3. This was up 41% on the peak IM call for Q2 and 129% on the year-ago quarter.

€GCPlus members also contributed €148 million more to the service’s default fund, increasing its size by 74% on the previous quarter to €349 million.


Required IM held by €GCPlus at end-September was €1.1 billion, down 47% from end-June, but 102% higher than end-September 2018.

What is it?

In public disclosure templates put together by CPMI-Iosco (the Committee on Payments and Market Infrastructures and International Organization of Securities Commissions), central counterparties report quantitative data on their credit and liquidity management on a quarterly basis. 

This includes data related to the amount of initial margin held to guard the CCP against counterparty risk. In the event of a default, that member’s initial margin is used first to cover the clearing house’s losses. If this proves insufficient, the CCP must draw on its own and other clearing members’ contributions to the default fund to make up the difference.

Why it matters

€GCPlus helps institutions minimise the capital and operational burdens linked to borrowing cash in exchange for general collateral assets. Lenders and borrowers are matched anonymously through automatic repo trading systems (ATS) BrokerTec, MTS and tpRepo, or directly using the Euroclear Trade Capture and Matching System. Their trades are then sent to LCH SA for registration and clearing.

The efficiencies of clearing may be partly responsible for the Q3 IM surge. General collateral financing is on the up, with the amount reported by ATS hitting €41.4 billion in June 2019, up from €37.8 billion the year prior, according to survey data collated by the International Capital Market Association.

Greater activity would have pushed IM higher. Risk Quantum understands €GCPlus did see increased volumes in Q3, although by how much is unknown.

More business often means greater risks, which would also explain why participants’ default fund contributions also surged in Q3. 

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