The Details
The protection of our customers’ assets is paramount at SwapClear, and we are proud of the risk management standards we adhere to and of the safety we offer.
For all US customers, SwapClear provides two forms of LSOC account structures in line with the Dodd-Frank requirements. If you are clearing in Europe, SwapClear offers five distinct account structure options, empowering you to determine the level of protection that’s right for you and for your cleared portfolio in line with the EMIR requirements.
Below you can find the customer protection tools at your disposal.
Customer Protection under EMIR / UK EMIR
*Available through our SCM service
Mandatory central clearing in Europe introduced requirements for CCPs with respect to the type and level of protection afforded to customers. In line with Regulation (EU) No. 648/2012 (EMIR) as effective in the EU (EU EMIR) and retained in the UK under the European Union (Withdrawal) Act 2018 (UK EMIR), your options for protecting your cleared positions and collateral at SwapClear are more expansive than ever before.
SwapClear offers clients five distinct segregation options with each presenting varying degrees of position and collateral segregation for your portfolio. Whether you want to target the level of protection desired for your positions, collateral, or both, and balanced with maximising cost and resource efficiencies, SwapClear can assist you in selecting the segregation option that best fits your purpose.
Seeking to minimise initial margin and keep costs down? Choose Value Omni which takes advantage of operational efficiencies across the client account, while still ensuring your positions are segregated from your clearing member (although it does expose you to fellow customer risk).
Looking for segregation of your positions and collateral assets from those of all other clients? Asset Seg may be the right choice for you.
Use our summary table below to explore your protection options and find the segregation model that is best for you, ordered with the strongest protection options at the top.
| Swap Positions Segregated | Actual Assets Segregated | Account |
|---|---|---|
| Yes | Yes | Asset SEG or Custodial SEG |
| Yes | No | Value SEG |
| No | Yes | Asset Omni |
| No | No | Value Omni |
Asset SEG
The AssetSeg account segregates your positions and collateral assets from those of all other clients. In a clearing broker default, and in the absence of portability, SwapClear treats all your collateral as an integrated value, drawing on this value to meet all position losses. Importantly, we identify, and can therefore potentially preserve, your specified assets (ISINs), which port individually to the clearing broker of your choice. A Multi-Branch AssetSeg option is also available to provide clients with the ability to distinguish positions attributable to different branches of the client.
In addition, LCH SwapClear offers the Custodial Segregation (“CustodialSeg”) account, which builds on and further strengthens the protection of specified assets under AssetSeg arrangements, while also improving collateral velocity and substitutability (see Custodial SEG tab).
Value SEG
The ValueSeg account segregates your positions from those of all other clients. Your positions port individually to the clearing broker of your choice, along with the collateral value – but not specified assets - associated with your account.
A Multi-Branch ValueSeg option is available to provide clients with the ability to distinguish positions attributable to different branches of the client. A ValueSeg Select option is also available, where the collateral account is ringfenced and contains collateral only pertaining to the ValueSeg Select clients.
Asset OMNI
The AssetOmni account commingles your positions in a pool with those of other clients that you select. This mitigates fellow customer risk while giving you a controlled netting benefit. SwapClear can identify and potentially preserve the specified assets recorded into the pooled account. In a clearing broker default, SwapClear can draw on these assets only to meet the pooled account's losses, not those of any other clients outside your AssetOmni account, and vice versa. All positions port together to another clearing broker, but you can select which.
Value OMNI
The ValueOmni account commingles your positions with those of other clients, exposing you to some fellow customer risk; however, you can select the other participants within the pool. This gives you a controlled netting benefit. In a clearing broker default, SwapClear treats your collateral value collectively, drawing on the value attributed to the account to meet all position losses. Pooled positions port together to another clearing broker, but you can select which.
Custodial SEG
The CustodialSeg account segregates your positions and collateral assets from those of all other clients and it provides you with the ability to directly manage the delivery of collateral assets to us. This minimises transit risk associated with moving securities to and from SwapClear via your clearing member, and ensures that they remain identifiably yours. In a clearing broker default, we cannot draw on your allocated assets to meet losses of any other clients. Your positions port individually to another clearing broker of your choice.
Omnibus or Individual Position Segregation?
SwapClear's protection options differ in their EMIR classification. Our omnibus ("Omni") plans pool your positions with those of other customers, which means some mutualization of risk—in a default, you may be affected by another client's losses.
However, pooling allows SwapClear to net offsetting positions, which can reduce your initial margin requirements. Omni plans can let you also choose the other clients in your pool—you could limit this to your own affiliates, for example.
Our individual segregation ("Seg") plans segregate your positions and/or collateral assets from those of other clients, eliminating fellow-customer risk.
Asset or Value Protection?
SwapClear's collateral protection options fall into two categories: "asset" and "value". Under our asset-protection plans, we segregate collateral assets and we keep a record of exactly which of the securities posted as collateral are yours. This enables SwapClear to preserve, and then port or return these assets in the event that your clearing member defaults.
Under our value-protection options, SwapClear tracks and safeguards the value of client assets for porting or return after a default from within a pool that covers more than one client.
Customer Protection under Dodd-Frank
*Available through our FCM service
In 2012, the CFTC introduced a new segregation concept in the US: LSOC – shorthand for “Legally Segregated, Operationally Commingled”. LSOC physically segregates customers from their FCM and ensures that a customer’s positions are legally segregated from all other customers and easily portable in the event of an FCM default. All this while still maintaining the operational efficiencies that keep costs down.
In addition to providing LSOC, SwapClear provides all FCM customers with a critical form of additional protection that we call “VM Seg”, shorthand for Variation Margin Segregation. From the moment of an FCM defaults, SwapClear ceases the netting of variation margin across customers of that FCM, guaranteeing each customer is credited with 100% of its gains.
For an in depth analysis of LSOC accounts, please read our white paper: LSOC; Principles and Implementation.
Our FCMs are able to provide their clients with one of two variations of LSOC.
LSOC without Excess
LSOC without Excess provides all the protections we afford to US customers, but does not allow for a customer’s excess collateral to be segregated at LCH. We legally segregate your positions and the value of collateral posted to meet your initial margin requirement. Although your collateral remains part of the pool that your FCM posts for its customers’ accounts, that value would never be used to margin, secure, or guarantee any other customer, before or after a default of your Clearing Member.
LSOC with Excess
LSOC with Excess offers you the same type of segregation and protection as for LSOC without Excess, but allows for excess collateral to be segregated at LCH.
Not only is your portfolio and initial margin legally segregated, but you can also deposit additional collateral, which receives the same level of protection. If your FCM defaults, this extra margin can help, reducing the risk of liquidation of your positions.
Additionally, LSOC with Excess may also make it easier for you to port your account to another FCM in case of default of your Clearing Member. Excess margin deposited with us may make you a more attractive client for porting since it is likely you will port with more collateral than you otherwise would.
For an in depth view of LSOC With Excess and of LSOC Without Excess, please read our white paper: LSOC; Principles and Implementation.
Contact us
If you'd like to know more about how we can help you, please get in touch.