SwapClear

LCH.Clearnet Ltd requires Clearing Members to post initial margin to protect the Clearing House against possible losses incurred in closing out a defaulting members’ portfolio.  For SwapClear an algorithm called Portfolio Approach to Interest Rate Scenarios (PAIRS) is used.  This is essentially a historical simulation approach with implicit currency correlation offsets.

LCH.Clearnet Ltd monitors the impact of changing prices and positions on the value and initial margin requirements of a members’ portfolios throughout the day. In the event of material changes in the mark to market of a member's portfolio and/or increased initial margin as a result of new trades, additional margin calls will be made. Additionally concentrations in members' portfolios are monitored.

A margin multiplier framework is in place that requires additional margin to be called in the event of such concentrations; this margin is to cover the further liquidity cost of closing such positions.

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