Rates Reform: Conversion Fees

Dear SwapClear User,

LCH Limited (“LCH”) expressed its intention to charge a Fallback Fee and a Conversion Fee[1] in circulars 4138 and 4146, as well as providing the amount payable for the Fallback Fee in circular 4150. This circular details the amount payable for the Conversion Fee as well as a reminder of the amount payable for the Fallback Fee.

In line with regulatory guidance, LCH strongly recommends that participants consider proactively transitioning away from fallen-back benchmarks.

As previously stated, other tools and processes are available to market participants to discontinue their reliance on rates that have fallen back. LCH will continue to make users aware of these alternative options available to minimise the use of the LCH conversion tool and the associated cost of conversion.

Conversion Fees

LCH will apply a conversion fee to SwapClear Clearing Member House and Client Contracts[2] which cannot otherwise be converted and so will be converted by the LCH conversion tool.

Timeline:

The conversion processes in 2021 will encompass CHF / EUR / GBP / JPY LIBOR and EUR EONIA contracts. LCH is proposing the following dates:

• For EUR EONIA, conversion shall apply to SwapClear Contracts outstanding at COB on Friday 15^th October 2021 and will be conducted over that weekend;
• For CHF, EUR & JPY LIBOR, conversion shall apply to SwapClear Contracts outstanding at COB on Friday 3^rd December 2021 and will be conducted over that weekend;
• For GBP LIBOR, conversion shall apply to SwapClear Contracts outstanding at COB on Friday 17^th December 2021 and will be conducted over that weekend

Fee Amount:

Due to the greater complexity for LIBOR conversion when compared to EONIA conversion, a fee will apply per contract included in an LCH conversion process as follows:

*Any LIBOR-LIBOR basis swaps that may need to be 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 LIBOR contracts that may have arisen from a basis swap splitting event will be charged separately if included in a conversion process

A cap will apply in 2021 for all SwapClear Clearing Member House accounts as follows. Note, this cap applies across Conversion Fees only and is not applicable for LIBOR Fallback Fees.

LIBOR Fallback Fees

As previously communicated in circular 4150, the following charges will apply to cleared contracts in both SwapClear Clearing Member House and Client accounts; 30-days’ notice will be provided for any amendment to these fee amounts.

Effective 30^th September 2021, LCH will apply a monthly fee for outstanding** CHF / EUR / GBP / JPY LIBOR contracts as of the last good business day of that month. For the avoidance of doubt, no charges will apply for either EUR EONIA or USD LIBOR contracts from this date.

** (i) FRAs will not be subject to Fallback Fees. (ii) Any LIBOR-LIBOR basis swaps that may need to be split into two interest rate swaps by LCH prior to conversion will not be double charged

Fee per outstanding contract:

Should you have any questions, or if you require further information, please do not hesitate to contact LIBOR@lseg.com or MembershipSales@LCH.com.

[1] Subject to regulatory notification

[2] ‘SwapClear Contract’ includes an ‘FCM SwapClear Contract’