MXN 28D-TIIE Conversion Update

Dear SwapClear User [1],

LCH Limited (LCH), and its SwapClear service, intend to perform a MXN conversion process (“MXN Conversion Process”) over the weekend of 23 November 2024, whereby in scope MXN 28D-TIIE SwapClear Contracts (each an Input 28D-TIIE Contract) will be converted into SwapClear Contracts referencing F-TIIE (each an Output F-TIIE Contract) [2].

In light of the limited adoption to date by market participants of F-TIIE as the alternative to 28D-TIIE in MXN swaps markets, evidenced by low levels of activity (liquidity) in F-TIIE swaps alongside continued robust liquidity in 28D-TIIE swaps, LCH plans to modify the conversion process for the benefit of the SwapClear service and its users.

LCH SwapClear notes that the new Banxico methodology involves computing 28D-TIIE fixings from individual F-TIIE fixings [3]. By inverting and extending this process, it is also possible to compute projected F-TIIE rates from projected 28D-TIIE rates. Taking advantage of this relationship, LCH SwapClear intends to incorporate the following procedure into the MXN Conversion Process [4]. LCH will first generate an EOD 28D-TIIE swap curve at the close of business on the Friday immediately preceding the event (“Conversion Input 28D-TIIE Swap Curve”). From this, LCH will produce a corresponding F-TIIE curve (“Conversion Input F-TIIE Swap Curve”) which adheres to the required F-TIIE/28D-TIIE relationship and is used as an input for calculating cash compensation as an output of the conversion process [5].

By using this method, LCH eliminates a reliance on independent F-TIIE market data and reinforces the emphasis on pricing in the liquid 28D TIIE market, thereby strengthening the process. LCH will deploy this approach as part of our “Dress Rehearsal” scheduled for 19 October 2024 so as to enable customer familiarisation. Further details are included in the MXN conversion material available in the Knowledge Centre, accessible via the LCH Portal.  

LCH SwapClear remains in active dialogue with relevant official sector bodies concerning the above measures.  LCH’s contingency planning and dates remain as previously communicated.

Should you have any questions, or if you require further information, please do not hesitate to contact RatesClientServices@lch.com and MXNConversion@lseg.com.

[1] “SwapClear User” means a SwapClear Clearing Member (including an FCM Clearing Member), a SwapClear Clearing Client or an FCM Client. “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.lseg.com/en/post-trade/clearing/clearing-resources/rulebooks/lch-limited.

[2] Further details on conversion scope available at: https://www.lseg.com/en/post-trade/clearing/membership/ltd-membership/ltd-member-updates/lch-conversion-outstanding-cleared-mxn-28d-tiie

[3] {2D6F5896-CF86-3F28-0C02-98D17B7542B9}.pdf (banxico.org.mx)

[4] lch-mxn-tiie-conversion-consultation.pdf

[5] Adherence will be determined by LCH at its sole discretion, including applicable tolerances