IM surges at LCH following CDS users’ shift from ICEU

Figures for Q3 show 16% jump at Paris-based CDSClear

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. 

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Tell me more 

Final CDS volumes migrate from Ice Clear Europe

Ice and LCH declare victory as CDS migration nears end

Ice Credit’s required initial margin up 18% in Q2

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