LCH’s Paris-based credit clearing service disclosed its highest amount of initial margin (IM) requirements on record in the third quarter of last year, thanks to an influx of positions migrating from Intercontinental Exchange’s shuttered European unit.
CDSClear saw a 15.8% rise in IM to €9.4 billion ($10.3 billion) in the three months to September 30, 2023, the largest such figure since data became available in 2015.
House accounts were up 11.9% to €6.8 billion, while client accounts jumped 28% to €2.5 billion.
Over the same period, Ice Clear Europe (ICEU)’s now defunct CDS division reported just €221.3 million of IM, down 94.2% quarter on quarter.
Ice Clear Credit (ICC) – the other clearing services where ICEU CDS clients could have moved their positions to – held $52.4 billion IM in Q3, down 6% from the previous quarter and the lowest since Q1 2022.
What is it?
Clearing houses that follow disclosure rules set by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions must disclose data related to the amount of initial margin held to guard the central counterparty against default.
In the event of a default, the defaulting member’s IM is used first to cover the clearing house’s losses. If this proves insufficient, the central counterparty must draw on its own and other clearing members’ contributions to the default fund to make up the difference. CCPs must disclose their end-quarter IM amounts, separated by house and client accounts and by clearing service.
Why it matters
Risk.net understands more than two-thirds of CDS open interest moved from ICEU to ICC by October 30, with the remainder hoovered up by LCH’s CDSClear. Since the move was first announced by ICEU in June 2022, IM at CDSClear increased by 83.4%, compared to a 5.3% rise at ICC.
LCH declined to comment on the latest rise in its required IM, but the increase would make sense considering clients relocation. Ice did not respond to a request for comment for this article, however, a spokesperson for the CCP said in May that positions had been absorbed without any increase of IM requirements.
This was a function of portfolio netting benefits and the scale of positions already cleared at ICC prior to the announcement. Since then, required IM has gone up slightly.
Explore our data
Readers of Risk Quantum now have access to some of the datasets that sit behind our stories – not just the segment of data that is the focus for the story, but the full time series, for the full population of covered firms. Readers can choose the institutions they want to look at, the metrics they are interested in, and download the data in CSV format to run their own comparisons and build their own charts. Risk and capital managers told us it would be helpful for internal reporting and benchmarking, but we figured many of our readers might get something out of it.
Currently, the available data covers more than 120 banks and over 100 risk and capital metrics, but we’ll be adding more throughout the year. The Risk Quantum database can be found here. The full list of data points currently available can be found here.
Get in touch
Like Risk Quantum? Sign up for free to our daily newsletter and check @RiskQuantum for the latest updates.
If you have any thoughts on our latest analysis or want to suggest other ways to present and analyse the data, you can email us.
Tell me more
Final CDS volumes migrate from Ice Clear Europe
Ice and LCH declare victory as CDS migration nears end
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk Quantum
Consolidation of Arval exposures adds €20bn to BNP Paribas’ RWAs
Bank shifts exposures from soon-to-be retired equity IRB treatment to standardised approach
Russian loan liquidation lifts RBI’s risk density
Cash parked at sanctioned central bank carries higher capital requirements than original loans
CCPs’ skin in the game drops to historic low
Clearing members bear increasing load, analysis of 15 clearing houses shows
StanChart’s market RWAs hit eight-year high
Client-driven RWA deployment raises market risk exposure by $3.2 billion
Valley National sees surge in delinquent CRE loans in Q3
Bank’s net charge-off rate more than doubles as $114 million in CRE loans become past due
UBS logs three VAR breaches on legacy Credit Suisse positions
Bank risks higher capital charges amid market volatility and exit-related costs
HSBC’s China CRE provisions surge to cover one-fourth of book
Additional reserves and reduced exposure elevate ECL coverage for mainland portfolio
Breaking market norms, tri-party repo rates plunge for fringe collateral
Yields hierarchy upended as cost of repo-ing equities and other volatile securities falls over a percentage point below UST repos