Historia y Evolución de la Motocicleta

In the event of member default, LCH would seek to remove the market risk inherited from the defaulter's portfolio to crystallise profits or losses. In the event of losses being incurred, LCH would apply the defaulting member’s margin and any surplus cover from the defaulter to cover losses and costs arising from the default. Other members’ margin contributions cannot be used and there can be no cross-subsidy between the defaulting member’s house and client accounts.

LCH has three sources of financial backing to cover losses in excess of the above:

• the Default Fund, provided by clearing members, currently around £180 million and due to increase to £300 million

• insurance cover of £100 million (available in the event of losses exceeding £150 million in any three year period)

• LCH’s own resources including reserves and capital.

In the event of margin insufficiency, LCH’s first recourse will be to the Default Fund contribution of the defaulting member. In the event of losses in excess of the defaulters contribution, LCH will utilise its post-default backing in the order shown below. Cumulative losses in excess of initial margin and the defaulter’s contribution are shown on the right hand side.

1. current year profits of LCH (up to £10 million) £10 million 2. the default fund (up to £140 million) £150 million 3. insurance cover (£100 million) £250 million 4. the remaining default fund (up to £160 million) £410 million 5. the capital of LCH (currently £52 million) £462 million

LCH’s Default Fund is constituted by cash contributions from clearing members in proportion to their clearing activity. Members’ contributions are assessed once a quarter based on their clearing activity for the previous quarter. The Default Fund is available to cover losses arising from any cleared positions, i.e. across all LCH’s current exchanges and OTC cleared

10 Payments and margin collateral

This section provides a brief overview of LCH’s Banking and Cover arrangements. For further information, please see LCH’s General Regulations, Default Rules and Procedures.

Every day, LCH will net liabilities in each currency across each clearing member’s market positions. Updated cash balances and collateral valuations will then be applied to the clearing member’s net liabilities, across all markets and currencies. Members can stipulate which order they wish their currency to be used to cover liabilities. They can also choose whether to use cash or collateral first.

At the end of this process, if a clearing member has insufficient cover to meet liabilities, a cash call is made through LCH’s Protected Payments System (PPS) arrangements, see section 10.2.

10.1 Cash calls and payments

LCH nets all cash items by currency. Netted cash items include:

• cash margin payments

• interest on any cash held at LCH

• fees (see section 12).

This is an overnight process. Members are notified of the amounts required daily by 6.00 a.m. and payment is due by 9.00 a.m. Surplus cash balances may be applied to margin requirements automatically to avoid the need for unnecessary calls.

10.2 Protected payments system

LCH operates the Protected Payments System (PPS) for the transfer of funds to and from members. This is effectively an irrevocable and unconditional payment arrangement, where the PPS bank is asked to confirm that the LCH-specified call will be met.

A clearing member is obliged to hold an account with a PPS bank in each currency in which it incurs settlements plus one for sterling for the purpose of Default Fund payments. Different PPS banks may be used for different currencies.

Calls are made via a SWIFT message to the clearing member’s PPS bank. Separate calls will be made in each currency. The relevant PPS bank must confirm to LCH by no later than 9am London time that the payment will be made.

The PPS system will also be used to make payments to members (e.g. return surplus cash balances) and to call intra-day payments for margin cover.

10.3 Acceptable forms of cover

The appendix lists the current forms of collateral that are acceptable for cover. This will be reviewed for the central counterparty service for SETS.

LCH revalues all securities, except Treasury Bills and Certificates of Deposit (which are valued based on nominal amounts) held each day and applies haircuts to cover potential losses in value.

10.4 Collateral lodgement and withdrawal procedures

Clearing members that wish to lodge securities with LCH must first execute an LCH standard Form of Charge. This document establishes a fixed charge over specified securities transferred into an account with LCH by the clearing member.

Forms are provided for execution whereby securities can be lodged with LCH as collateral or released by LCH to the clearing member. Securities held as collateral may be released provided that the aggregate total cover will not fall below the required cover level.

Current delivery arrangements are in place for securities to be held at:

• CREST/CGO

• CMO

• Euroclear.

10.5 Interest

Interest, at a rate based on that for overnight inter-bank deposits, is paid to clearing members on all cash deposited in margin accounts. Although this rate is calculated daily, it is paid monthly in arrears.

LCH currently pays a minimum of 3 month LIBOR + 100bp on Default Fund contributions.

This rate is calculated and paid quarterly in the months of November, February, May and August. It is calculated on the first working day of the month, advised on the second working day and paid (in practice only the net change in requirement is called or paid) on the fourth working day of the month.

11 Reporting to members

11.1 CREST system

The CREST system will provide the following information for clearing member participants:

• Aggregated positions for the GCM or ICM at any point requested intra-day or end of day.

The GCM will also be able to request aggregated net positions for each of their NCMs.

This will allow ICMs and GCMs to replicate the margin calculations if they wish. The end of day positions available from CREST will be identical to those used by LCH to calculate overnight margins.

Note: it will be possible for the ICM or GCM to reconcile between the gross settlements and the end-of day net positions.

• GCMs will be able to download gross trades for their NCMs at any point intra-day.

• Initial and Variation margin calculated by LCH, both intra-day and end of day.

• Historical prices to allow GCMs or ICMs to replicate margins.

• LCH Banking information.

• Static data, e.g. eligible securities.

11.2 Existing LCH sources

For existing LCH clearing members, their banking reports (which will contain SETS business) will continue to be provided by the existing mechanisms.

The reports are provided via CPS for LIFFE members, via the LME browser for LME members and, if requested, by the Tradepoint system for Tradepoint members. Members that are using RepoClear and SwapClear obtain their information via LCH’s Web/Intranet Member Reporting facility.

Currently it is proposed that no additional information (other than these banking reports) for SETS business will be provided via these existing mechanisms.

12 Tariffs

This section focuses on the LCH tariff as the trading and settlement tariffs of the Exchange and CREST are not proposed to change as a result of the introduction of the central counterparty.

12.1 Tariff approach

LCH operates on a not-for-profit basis, generally expecting the clearing functions for each of the markets it clears to cover their own development and operating costs and a pro-rata amount of LCH’s fixed overheads.

At the end of each financial year, if the income of a market is greater than the expenditure, the surplus is generally repaid to that market’s clearing members in proportion to their transaction volume, i.e. a rebate is given based on transaction fees paid. However, rebate policy is at the discretion of LCH’s Board.

These clearing fees will be reviewed subsequently by the LCH Board in the light of LCH’s operational costs and the volume of business being cleared.

12.2 Proposed tariff structure

The proposed tariff structure is intended to provide some or all of the income via a fixed charge per settlement. The remainder would come from an ad valorem charge on trading, possibly capped at a reasonable level.

However, this structure is not finalised. The actual structure and the levels will be announced later in 2000.

The tariff will be collected through existing mechanisms, which could include LCH’s, the Exchange’s and CREST’s charging mechanisms. This is still to be determined.