LME Clear Offers Triparty Member Margin Collateral Service

LME Clear has launched its new triparty member margin collateral service that has been introduced to support members’ collateral management. The service will be provided by Euroclear, a financial market infrastructure, that holds over €41 trillion assets in custody.

The introduction of a triparty agent provides members with the opportunity to reduce the complexity and costs of managing the collateral they hold with LME Clear to meet margin requirements. Currently, when required to provide securities as collateral to LME Clear, members transfer individual securities directly from their account into LME Clear’s collateral account. This entails a member selecting which securities to transfer, processing instructions for each settlement and facing instruction and settlement costs for each security that is transferred.

In future, members will be able to hold securities with Euroclear through the triparty service and give a single instruction for Euroclear to transfer multiple securities to LME Clear to meet margin requirements. All the administration will be handled by Euroclear which will ensure that members’ securities are optimised and used efficiently.

Under the triparty arrangement, members will be able to hold a wider range of assets than current bilateral eligibility allows. Euroclear will be responsible for determining whether securities meet LME Clear’s requirements and LME Clear will work with Euroclear to ensure that the correct risk parameters are set and applied.

The triparty service will make it easier for LME Clear to introduce new categories or issuers of securities as acceptable collateral. It has enabled LME Clear to now accept eligible collateral from an additional nine new issuers, as well as including US and UK Inflation Linked Bonds as eligible, where the securities are held by Euroclear as the triparty agent.

Barry Gethin, LME Clear’s Head of Collateral and Liquidity Services said: “We are keen to support our members who face the challenge of making the most efficient use of their resources. “Introducing a triparty service will allow members to reduce their operational burden and make optimal choices about the securities they provide as collateral. In addition, it opens the door to members holding a wider range of securities as acceptable collateral. We will continue to deliver enhancements to our collateral service to benefit our marketplace.”

Sara Cescutti, Chief Commercial Officer, EMEA Euroclear commented: “Euroclear has a strong history of delivering collateral management solutions across the globe. This new initiative highlights the vital role we play in supporting clients and other market infrastructures to optimise collateral allocation, minimise settlement fails, and reduce credit usage – ultimately contributing to greater market efficiency.”

LME Clear has also confirmed that it will be making changes to the way that Offshore Renminbi (CNH) can be held as eligible cash collateral. Applicable from 1 November, changes to the interest paid on CNH held as collateral are intended to make it a more attractive option for clearing members as part of a renewed focus on the CNH collateral service.

Background

• LME Clear accepts a range of assets as acceptable collateral, including securities (bonds) from: USA, UK, France, Germany, Finland, Japan, Netherlands. For those clearing members using the triparty service, acceptable collateral will be extended to include certain explicitly government guaranteed and supranational issuers as well as Inflation Linked Bonds issued by some approved sovereign issuers. Full details of eligible collateral and further detail on the triparty collateral service can be found on collateral management .
• The LME has accepted Offshore Renminbi as eligible cash collateral since 2015. Details can be found on renminbi as collateral.

Source: LME