LSOC and Cleared Swaps Customer Protection
As part of the Dodd-Frank Wall Street Reform Act, the CFTC published new regulations that provide for additional cleared swaps customer protection. Part 22 of the CFTC’s regulations sets forth swaps customer protection standards, which are commonly referred to as “Legal Segregation with Operational Commingling”, or LSOC.
CME Clearing launched its LSOC rules and operational requirements on Wednesday, November 14, 2012. LSOC now applies to positions and collateral for customer cleared swaps. It does not apply to futures unless futures clear in the customer cleared swaps origin pursuant to DCO (Derivatives Clearing Organizations) rules for portfolio margining of futures versus swaps.
LSOC provides a fundamental change in how FCMs (Futures Commission Merchants) and DCOs treat cleared swaps customer positions and related collateral. The primary goals of LSOC are to:
- Reduce fellow customer risk.
- Protect cleared swaps customer collateral in the event that an FCM defaults to a DCO due to cleared swaps customer non-performance.
CME Clearing, in addition to adhering to LSOC regulations, seeks to offer cleared swaps customers some added enhancements that will provide more transparency, more control and ultimately better protection.
For additional information on LSOC, please contact CME Clearing at LSOC@cmegroup.com.
- LSOC and CME Group’s Vision for Cleared Swaps Customer Protection
Provides a high-level overview of LSOC and related customer protection models
- Cleared Products Subject to LSOC (Updated November 8, 2013)
Provides precise information regarding which products are subject to LSOC and which are not. Includes information about new swap contracts listed on the CME SEF on November 11, 2013.
- Clearing Advisory 12-450 (October 19, 2012): LSOC Rule Revisions
Enumerates the CME rules changed pursuant to LSOC
- Clearing Advisory 12-466 (November 1, 2012): New Dates for CGM and LSOC
Explains the brief delays in the implementation of Customer Gross Margining and of LSOC authorized by the CFTC
- Clearing Advisory 12-486 (November 9, 2012): LSOC and Client Contact Information
Provides clarification regarding CME's LSOC rules and the collection of client contact information
- Joint Audit Committee Advisory 12-03 (October 18, 2012): The LSOC Compliance Calculation
Provides a detailed explanation of the LSOC compliance calculation that FCMs with customer positions in cleared swaps must perform
- Clearing Advisory 13-064 (February 7, 2013): CME's Updated LSOC Phase 2 Schedule and Principles
- Clearing Advisory 13-440 (September 24, 2013): CME to Allow Excess LSOC Collateral Value to Cover Variation Margin Losses
Explains the "Combined Cash Flow (CCF)" feature of CME's LSOC With Excess offering, allowing clients and firms to cover either variation margin or initial margin obligations using excess collateral value already on deposit with CME Clearing.
- Clearing Firm LSOC Choices (February 4, 2014)
Summarizes in one convenient location the choices available to each CME clearing firm in implementing LSOC
- Collateral Value Report Validations (February 4, 2014)
Summarizes in one convenient location the three validation checks applied to each Collateral Value Report
- Ensuring LSOC Compliance at Intraday for Portfolio Margining Accounts (February 4, 2014)
Explains how to use the IRSXV-ITD datafile to verify LSOC compliance for the intraday VM calls for interest-rate futures being portfolio margined together with interest-rate swaps
- CME LSOC and CCE ICAV Collateral Value Reporting FIXML Message Examples(updated March 13, 2014)
Provides fully detailed examples and specifications for Collateral Value Report (CVR) submissions, both for CME LSOC and for Individual Client Accounts at CME Clearing Europe.
- LSOC Collateral Reporting FIXML Message Sample (June 27, 2013)
A small data file, exactly illustrating the minimum requirements for an LSOC FIXML Collateral Value Report
- LSOC Output Report Formats (November 22, 2013)
Provides detailed formats and explanations of the datafiles produced by CME for LSOC. There are two sets of files: one set produced at each settlement cycle, which show firms how their LSOC “top-up” margin requirements were determined, and a second set produced whenever a Collateral Value Report submitted by the firm is processed.
- Clearing Advisory 13-175: On-Demand Collateral on Deposit Datafiles (April 11, 2013)
Provides details on the "collateral on deposit" datafiles, which provide exact data of collateral on deposit with CME. These files are produced three times daily and are also available on request.
- Collateral on Deposit Datafile Format (March 22, 2013)
- Customer Gross Margining Technical Information
Provides full technical details on the creation and formatting of the Customer Gross Margining (CGM) datafiles which firms must submit each evening for customer positions in futures and options.
- Clearing Advisory 14-127: Additional Client Master Data for Margin Accounts (March 27, 2014)
Provides detailed specifications for reporting of additional client master data for margin accounts, including the new FIXML-based Margin Accounts Master file. For swaps clients, data may be included in either the Margin Accounts Master file or in the LSOC CVR files, and for futures clients, data may be included in either the Margin Accounts Master file or the Customer Gross Margining (CGM) position files.
- Collateral API – CSV-format (April 17, 2014)
- Collateral API – FIXML format (February 24, 2014)
In 2014 CME Clearing will roll out an API to allow firms to automate collateral deposit and withdrawal requests. This will be made available in two formats – a simpler CSV-format file-based approach, and a full-featured FIXML-format message-based approach. These two documents provide specifications for the API.