This advisory explains the details of FCM collateral value reporting to CME Clearing under the CFTC’s Part 22 “LSOC” regulations. It updates and extends Clearing Advisory 12-139, published on March 29, regarding reporting requirements for Customer Gross Margining and LSOC.
LSOC, which is short for Legally Segregated Operationally Commingled, is a new CFTC regulatory regime which must take effect by no later than Thursday, November 8, 2012. CME Clearing plans to launch its LSOC rules and operational requirements on Monday, November 5, 2012. LSOC applies at that time 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 rules for portfolio margining of futures versus swaps.
Under LSOC, derivatives clearing organizations (DCOs) must provide their FCM clearing members with a means of identifying ownership interests in the value of collateral that the FCM has posted with the DCO to meet initial margin requirements of customers’ cleared swaps. To put it simply, the FCM reports to the DCO the breakdown of the total collateral value into amounts owned by or attributable to individual customers.
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