| LCH circular number: | 4346 |
| Date: | April 24, 2025 |
| To: | All SwapClear Participants |
Dear SwapClear Participant,
At present, LCH Limited (LCH) uses DKK Tom/Next [1] for two purposes in our SwapClear service. First, it is used directly to calculate the price alignment interest (PAI) and price alignment amount (PAA) payable in respect of DKK-denominated SwapClear Contracts [2]; and second, the market rates for fixed/floating swaps linked to DKK Tom/Next on their floating leg are used to compute the daily net present value of such SwapClear Contracts.
The announcement of the future cessation of DKK Tom/Next [3] means that market participants, including LCH’s SwapClear service, must stop using DKK Tom/Next and start using an alternative rate. In line with wider transition efforts, LCH has identified the Denmark Short-Term Rate (DESTR) as the most appropriate alternative (risk-free) rate.
As a result, on Saturday 22 November 2025, LCH will perform a transition to use DKK DESTR (without any spread) in place of DKK Tom/Next. More specifically, DKK DESTR (without any spread) will be used to calculate PAI and PAA in respect of DKK-denominated SwapClear Contracts, and the rates for DESTR swaps (without any spread) will be used to compute the daily net present value of such SwapClear Contracts. The transition event in production will be preceded by a dress rehearsal event to be conducted in LCH’s member test environment on Saturday 8 November 2025 [4].
To account for the impact of these changes, and in line with corresponding changes made previously to SwapClear’s treatment of EUR-denominated SwapClear Contracts [5], LCH plans to apply cash compensation payments in relation to all users’ accounts with DKK-denominated positions that will be outstanding at the close of business on the Friday immediately preceding the discounting switch event, being Friday 21 November 2025. The cash compensation amounts will be calculated under a ‘constant-forward methodology’ as the difference between the net present value of all future cash flows calculated using DKK DESTR discounting and the net present value using DKK Tom/Next discounting.
This change will not affect the coupon payments on any DKK-denominated SwapClear Contracts, which will remain linked to their existing floating rate option (e.g. DKK CIBOR in case of DKK CIBOR SwapClear Contracts).
Finally, from and including Monday 24 November 2025, any DKK-denominated SwapClear Contract that arises from the clearing of a DKK-denominated swap will, from the point of registration, be valued under these new DESTR-based arrangements. For the avoidance of doubt, swaps that reference DKK CIBOR as their floating rate option will remain eligible for clearing at SwapClear beyond 24 November 2025.
The process described herein may require an LCH Rulebook change and remains subject to risk governance and legal and regulatory review.
If you have any questions, please contact RatesClientServices@lch.com.
Kind regards,
Sales & Relationship Management, Rates Service
Footnotes
[1] As from 1 April 2022, the Tom/Next methodology has been changed to DESTR + 19 basis points. More details at: https://dfbf.dk/dfbf-provides-a-one-off-spread-between-destr-and-tom-next/
[2] “SwapClear Contract” includes an “FCM SwapClear Contract” for the purposes of this circular. SwapClear Contract and FCM SwapClear Contract have the meanings assigned to them in the General Regulations or FCM Regulations (as applicable) and made available at https://www.lch.com/resources/rulebooks/lch-limited.
[3] DKK Tom/Next will be discontinued on 1 January 2026. More details at: https://dfbf.dk/consultation-on-tom-next-transition-concluded/
[4] The contingency date for the DKK PAI, PAA and discounting transition event in production will be Saturday 6 December 2025.