Intra-Day Margin Project Frequently Asked Questions

Q. What will be the expected frequency of the intra-day margin calls ?

A. The intra-day margin calls will only be performed in case of exceptional market situations. As a comparison, the AFC (Appels de Fonds Complémentaires i.e. additional margin calls) mechanism currently in place was last triggered in 2001 and 2002. To ensure that such calls remain exceptional, a threshold will be defined accordingly. The shadow run period using production data will allow to define the adequate threshold level.

Q. Will the risk parameter file and the intra-day prices be published daily ?

A. Risk parameters’ files will be provided to members for the intra-day sessions marked as being “With Call”. Should more than one session be marked as “With Call”, there will be as many risk parameters’ files made available to members on the website. These files include details for intra-day prices.

Q. Should there be more than one session marked as “With Call”, will the last calculation take into account the intra-day margins deposited by members for the previous intraday call?

A. Yes. Margin requirements will be calculated using the last updated positions and intraday prices. Requirements will be compared with the collateral held by LCH.Clearnet SA at that point in time including cash collateral deposited for an earlier intra-day call.

Q. How will members be informed, should another margin call be triggered at another time than the session being by default marked as “with call” ?

A. Members will be provided with the milestone indicator that the session is a “with call” session. Furthermore, albeit not being formalized yet, members will most probably be informed of such exceptional event through an OP-Info or a Risk-Info.

Q. Will members be informed of the threshold level retained by LCH.Clearnet SA?

A. Yes. Once the threshold level is defined by LCH.Clearnet SA pursuant to the shadowrun period, members will be kept informed.

Q. What are the arrangements if an intra-day margin call is to be triggered at 5:30 pm when the payment system is closed. Will it be possible to pay the margins in USD ?

A. The last possible session “with call” is the session starting at 2:30 pm with a potential call being made at 3:30 pm. Therefore, there will not be any call triggered for the two following sessions. The facility of paying the intra-day margin call in USD needs to be assessed. Further information will be provided to members when available.

Q. Why are there 9 intra-day calculations? Couldn’t the same result have been achieved more efficiently with a lower number of runs?

A. The main objective in the project is to develop an internal capability to follow members’ exposure throughout the day. As a result, it was decided to run hourly intra-day sessions.

Q. Will the introduction of intra-day margins lead to a decrease of the level of margins called in the morning?

A. It is currently not anticipated albeit that it could be studied at a later stage. However, the intra-day margin mechanism being based on exceptional market situations, it is unlikely that margin levels would decrease.

Q. Should the intra-day calculation result in a lower level of margin requirements than what was called in the morning, would LCH.Clearnet SA restitute margins to members?

A. It is not envisaged to do so, as this new mechanism is intended to solely cover big increases of members’ exposures.

Q. Will LCH.Clearnet SA extend this mechanism to the cash markets and if so when?

A. LCH.Clearnet SA is focusing on the products which generate the largest exposure to the clearing house. An extension to the cash markets would only be envisaged after a full implementation of the mechanism for the derivatives products and after having done a full assessment of the next steps.

Q. Will the intra-day calls pay a financial interest to members ?

A. Cash deposited to cover intra-day margin calls will be remunerated using the same rates than the ones applied for the morning call.

Q. The service description document mentions that changes to the PR-PDSE contract might be necessary ? What is the current status and what would the changes be ?

A. The Legal Department is currently working on this topic. Once full legal information is available, it will be provided to members.

Q. Would intra-day collateral deposited in the form of securities be included by LCH.Clearnet SA when revaluating members’ collateral?

A. Security deposited intra-day cannot be used to cover intra-day margin requirements.

Q. What will happen if a member does not fulfill its margin requirement intra-day?

A. As per the LCH.Clearnet SA clearing rules, not fulfilling margin requirements constitutes a ground for declaring the member in default. If we observe that a member has not fulfilled his margin requirements the same escalation procedures will be triggered as when we observe this in the morning following the overnight margin run. An assessment of the situation will be made (should the member be considered in default?), pursuant to which actions would be taken.

Q. Given the rare frequency of the intra-day margin call and difficulties for members to reconcile, should members implement an automated solution or manual procedures ?

A. Such a decision to use manual procedures has to be taken by members.

Q. If a clearing member has more than one Performance Bond account, will an offset between Performance Bond accounts be made in order to calculate the final margin call amount ?

A. The margins will be calculated per Performance Bond account. However, for the calculation of the amount to be collected, the margins per Performance Bond account will be added together.

Q. What will be the exact consequences for the members of the change in the Short Option Minimum ?

A. A Flash Info was sent on 18 September 2006 to explain the change in the Short Option Minimum.

Q. What functionalities will be provided to members for reconciling the positions?

A. A milestone will be provided to members indicating the time at which positions have been captured.