More Margin Fun: LCH Clearnet Raises Margins On Irish Bonds, May Proceed With Comparable Hike For Other Products

It appears commodities are not the only items that are susceptible to margin increases: the other casualty, bonds, especially those of insolvent European countries. LCH Clearnet has just hiked the margin requirement for Irish government bonds by 15% of net exposure, leading to additional selling of long positions, and resulting in the rout in spreads currently seen in Irish bonds. As Bloomberg reports, citing Simon Penn from UBS, “this is LCH recognizing that the markets are quite serious about the potential for Ireland to default or restructure.” And as the LCH acknowledges, “if we judge that it is appropriate to apply the risk framework we have for Ireland elsewhere then we will do so,” John Burke, head of fixed income at LCH, said by phone today. “Having taken the step to invoke the risk framework for Ireland, it is a significant and appropriate move.” The market is now also pricing in an almost certain comparable hike in Portuguese bonds, judging by the price action there. The LCH action has the potential for wide-reaching implications, as the organization acts as a central counterparty for a whole slew of exchanges.

Among these are:

  • NYSE Liffe     
  • LCH EnClear - OTC Emissions    
  • LCH EnClear - OTC Freight    
  • LME    
  • EDX    
  • EquityClear    
  • Nodal Exchange    
  • RepoClear    
  • SwapClear    
  • LCH EnClear OTC Services: Emissions

From LCH Clearnet

Dear RepoClear Member,

1. In accordance with the Sovereign Risk Framework issued on 5 October 2010, LCH.Clearnet Ltd has revised the risk parameters for Irish government bonds cleared through the RepoClear service.  The margin required for positions of Irish government bonds will consequently be increased by 15% of net exposure. This will also apply to Irish government bond exposures in the single 'A'  €GC basket. LCH.Clearnet will continue to monitor the situation closely and keep the parameters under close review.  

2. The additional margin will be charged on net exposure at close of business on Thursday 11 November 2010 and will be reflected in a margin call on Friday 12 November 2010.

3. Those members affected by the changes will be contacted individually later today and given an indication of the size of the margin call.  

4. Details of the Sovereign Risk Framework can be found on the LCH.Clearnet website ( under Risk Management > Ltd > Margin rate circulars > RepoClear.

5. Report 74 (available on the LCH.Clearnet Member Reporting website) will detail any further changes in the margin levels charged under this framework.


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