| LCH circular number: | 4326 |
| Date: | October 23, 2024 |
| To: | All SwapClear Participants |
Dear SwapClear Participants,
This circular details the timeline and the fees associated with the 2025 IBOR conversion processes. The fees and caps associated with the 2025 IBOR conversion process are the same as those applied to the 2024 IBOR conversion process.
LCH Limited (“LCH”) recommends that participants consider proactively transitioning away from fallen-back benchmark rates.
The fallback fee applies to cleared contracts referencing an IBOR[1] for which a conversion event will occur. It aims to encourage early transition before the relevant conversion processes is carried out, thereby mitigating LCH’s concerns in relation to a) ongoing risk and default management, as well as b) the operational and technological risks associated with the conversion process (with mitigants including fewer line items to manage and fewer FpML messages for users to consume over a conversion weekend).
The conversion fee applies to each cleared contract linked to an IBOR which LCH converts to one referencing its recommended alternative. The conversion process is designed as a last resort for those participants who are otherwise unable to transition away from fallen back rates or rates that are no longer freely available. The fee is designed to allow LCH to recover the costs of designing, building and running the conversion process and should also discourage over-reliance on the conversion tool.
As previously stated, other third-party tools and processes are available to market participants to discontinue their reliance on rates that have fallen back.
2025 Fallback Fees
Effective 3 months prior to each LCH currency conversion date and each subsequent month up to the LCH currency conversion date, LCH will apply a monthly fallback fee for the outstanding[2] IBOR contracts for each currency, as of the last good business day of that month.
The following charges will apply to SwapClear Contracts[3] registered in a SwapClear Clearing Member’s[4] proprietary or client account.
| 3 months prior to LCH conversion date | 2 months prior to LCH conversion date | 1 month prior to LCH conversion date |
|---|---|---|
| GBP 5 | GBP 5 | GBP 5 |
Conversion Fees
LCH will apply a conversion fee to SwapClear Contracts registered in a SwapClear Clearing Member’s proprietary or client account which require conversion by LCH[5].
| Conversion Fee per Contract |
|---|
| GBP 30 |
An annual conversion fee cap will apply in 2025 for all SwapClear Clearing Member proprietary accounts as follows. Note, this cap applies to conversion fees only and is not applicable for fallback fees.
| Member Conversion Cap |
|---|
| GBP 175,000 |
If you have any comments or want to discuss any aspects in more detail, please contact your LCH representative or get in touch via LCHSales@lseg.com
Kind Regards,
SwapClear
[1] “IBOR” refers to the interest rate benchmarks being replaced by alternative risk-free rates.
[2] (i) FRAs will not be subject to fallback fees. (ii) Any IBOR-IBOR basis swaps that may be voluntarily split into two interest rate swaps by LCH prior to conversion will not be double charged.
[3] ‘SwapClear Contract’ includes an ‘FCM SwapClear Contract’ and is defined in the LCH rulebook.
[4] SwapClear Clearing Member’ includes an ‘FCM Clearing Member’ and is defined in the LCH rulebook.
[5] Any IBOR-IBOR basis swaps that are voluntarily split into two interest rate swaps by LCH prior to conversion will be treated as two separate swaps from the point of splitting. As such, any outstanding IBOR contracts that may have arisen from a basis swap splitting event will be charged separately if included in a conversion process.