How it works
Each participant trading on EDX London must either be a member of LCH.Clearnet Ltd, or must have a clearing relationship with an LCH.Clearnet member.
The use of LCH.Clearnet as the central counterparty for all EDX related business means that a member trading at EDX will benefit from a consolidated margin and settlement flow from all activity it has in relation to LCH.Clearnet.
Settlement takes place through PPS arrangements in local depositories against LCH.Clearnet.
Lifecycle of a trade
The table below provides a brief overview of the lifecycle of a single trade. The example assumes that the executed trade is a single stock future or option with a standard settlement cycle. Note that intra day margin calls are excluded.
| Date/Time | Event |
|---|---|
| Trade (‘T’) | Trade executed |
| T | Trade passed to central counterparty in real time |
| T,overnight | Initial and Variation Margin calculated by LCH |
| T+1 | Margin calls sent to clearing members’ PPS banks |
| T+1, 9am | Margin payments confirmed |
| Expiry (‘E’) | Exercise or Closing of contract |
| E, overnight | Final cash settlement or Delivery instruction produced |
| E, overnight | Delivery Margin calculated by LCH |
| E+1 | Final cash settlement and/or Margin calls sent to clearing members’ PPS banks |
| E+1, 9am | Final cash settlement and/or Margin payments confirmed |
| E+1, overnight | Delivery Margin calculated by LCH |
| E+1 | Margin calls sent to clearing members’ PPS banks |
| E+2, 9am | Margin payments confirmed |
| E+1, evening | Settlement instruction matched in CSD. LCH assumes settlement for all trades, i.e. the trade will not be included in the overnight margin calculation |
| E+3 | Settlement (if failed settlement, position is updated with failed trade and margined accordingly) |
LCH.Clearnet as Central Counterparty
LCH.Clearnet is the central counterparty to all EDX London trades providing risk and operational benefits to its members. In the event of an LCH.Clearnet member default, LCH.Clearnet assumes the role of legal counterparty to the defaulter’s open positions, and in adopting the various safeguards it employs, will seek to ensure that the defaulting member’s obligations are met. In order to protect itself from the resulting market and counterparty risks, LCH.Clearnet has in place minimum membership criteria, calculates initial and variation margin liabilities end of day and intra day, collects collateral accordingly and performs ongoing membership evaluation and monitoring.
LCH.Clearnet does not hold unbalanced positions. Whilst acting in a principal capacity to all its members, its economic exposure is balanced across its account. This is the same role that LCH.Clearnet performs in relation to all its cleared business across other exchanges and OTC markets.
EDX/LCH.Clearnet Interfaces
