Client Segregation at LCH SA
The protection of our Clearing Members and their clients informs absolutely all our thinking about asset segregation here at LCH SA – put simply, your protection comes first.
The manner in which CCPs manage members’ and clients’ assets is one of the most significant areas of change required by regulators amid the market reform commitments agreed by the G20 nations in 2009.
In Europe, the European Market Infrastructure Regulation (EMIR) and in the US, the Dodd-Frank account structures have been designed to reduce the counterparty risk of OTC derivative markets and increase transparency.
LCH SA offers European clients a choice of Individually Segregated Accounts (ISAs) and Omnibus Segregated Accounts (OSAs) for their clients, in order to meet the EMIR requirements.
LCH SA offers US clients the Legally Segregated Operationally Commingled (LSOC) account structure, in order to meet the Dodd-Frank requirements.
Customer Clearing Accounts under EMIR
Under EMIR, LCH SA offers three different account types that provide either individual segregation (ISA) or omnibus segregation (OSA) in either a net margin or gross margin fashion.
Individually Segregated Account (ISA)
An ISA can only be held by a client that is a known user of LCH, and has completed the account opening procedures via its Clearing Member.
A client in an ISA has no co-mingling with any other client or the house, and is subject to porting procedures entirely independently from any other entity or account.
Our “asset tagging” model for ISAs has two main features to protect client assets.
We can tag specified assets (securities and/or cash sums) to the client’s ISA, which for each individual client identifies what to transfer alongside positions in the event of a default.
In addition, we can port the actual assets of the client, rather than the value of the assets.
Omnibus Segregated Account (OSA) – Gross Margin
This type of OSA is an arrangement in which one or more clients share an account.
This would typically be used for cleared exchange-traded products and is also the basis of the popular value segregation models already used by cleared swaps customers.
A set of positions at LCH can represent the trades (and derived positions) of either:
- a single known client
- a pool of known clients
- a single unknown client
- a pool of unknown clients
The initial margin for each set of positions is calculated independently and the sum of the IM liabilities must be covered by assets in the collateral account.
In the event of porting or liquidation each client has shared claims over the assets in the account.
Omnibus Segregated Account (OSA) – Net Margin
This type of OSA is an arrangement in which one or more clients share an account.
This would typically be used for cleared exchange-traded products.
A set of positions at LCH can contain the trades (and derived positions) of either:
- a single known client
- a pool of known clients
- a single unknown client
- a pool of unknown clients
The initial margin for each set of positions is calculated as a single net liability allowing offsets between all the trades and positions for all the position records inside of the OSA net structure.
The single net IM liability must be covered by assets in the collateral account.
Customer Protection under Dodd-Frank
In 2012, the CFTC introduced a new segregation concept in the US: LSOC – shorthand for “Legally Segregated, Operationally Commingled”. LSOC physically segregates customers from their FCM and ensures that a customer’s positions are legally segregated from all other customers and easily portable in the event of an FCM default. All this while still maintaining the operational efficiencies that keep costs down.
LSOC without Excess
LSOC without Excess provides all the protection we afford to US customers, but does not allow for a customer’s excess collateral to be segregated at LCH. We legally segregate your positions and the value of collateral posted to meet your initial margin requirement. Although your collateral remains part of the pool that your FCM posts for its customers’ accounts, that value would never be used to margin, secure, or guarantee any other customer; before or after a default of your Clearing Member.
LCH SA Account Fees
Annual Account Structure Fees
You may find the account structure fees.
Legal Implications
Pursuant to Article 39(7) of EMIR, CCPs shall publicly disclose the levels of protection associated with the different levels of segregation offered, including a description of their main legal implications.
Click here to access the LCH SA disclosure statement pursuant to Article 39(7) or EMIR
Terms and conditions
This fee model became effective on June 12, 2014, the date on which LCH SA was authorised under EMIR.
On the creation of a new account, the yearly fee becomes immediately payable, and annually on the anniversary of the creation date thereafter.
For existing client accounts, the yearly fee applied upon LCH being authorised under EMIR and annually on the anniversary thereafter.
The fees do not apply to house accounts.
The fees are non-refundable once paid, no refunds for partial years.
No discounts for multiple accounts.
No adjustments for multiple collateral accounts.
The same see model applies to indirect clearing accounts.
Jurisdictional Legal Opinions
As part of LCH SA's EMIR authorisation, we have commissioned legal opinions in respect of each jurisdiction in which we have Clearing Members.
As far as the Cash Markets, Fixed Income products and Triparty Repo clearing services are concerned:
- The legal opinions are available on demand, on a non-reliance basis, and those which are currently in draft form are therefore subject to possible change.
- Queries relating to legal matters should be directed to lch.sa.onboarding@lseg.com
As far as the CDS are concerned:
- The legal opinions are available on demand.
- Queries relating to legal matters should be directed to lch.sa.onboarding@lseg.com
It is important that clearing members familiarise themselves with the legal implications associated these ISA and OSA accounts. LCH SA has produced disclosure for the purposes of Article 39(7) of EMIR which can be accessed by clicking on the link below.
Legal Implications - Account Arrangements (Article 39.7 disclosure)