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 January 16, 2015)
Provides precise information regarding which products are subject to LSOC and which are not. - 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 Advisory 15-119 (May 4, 2015): Modifications to the CST610 Settlement Report for LSOC Minimum Margin Calls
Explains how LSOC minimum margin calls work and how they are no longer achieved via the temporary "LSOC Top Up" margin requirements - 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 (September 25, 2014)
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 (January 5, 2015)
- Customer Gross Margining Technical Information (December 27, 2016)
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. - Performance Bond Requirements Datafiles (December 10, 2020)
Provides details of each of the files - formats and naming conventions - published by CME to provide initial margin (performance bond) requirements for the various asset classes. - Variation Margin Requirements Datafile (September 26, 2014)
Provides VM amounts by position account and currency at each settlement cycle, in an easy to use format and available at the earliest possible moment in the cycle. Especially useful for clearing firms doing LSOC compliance calculations at the intraday settlement cycle for customer positions in commodity swaps. - Clearing Advisory 14-127: Additional Client Master Data for Margin Accounts (July 23, 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. - Clearing Advisory 15-144: Using FIA Tech OCR system for additional client data (May 28, 2015)
Describes how clearing firms may use the FIA Tech system for Ownership & Control Reporting to submit additional client data for risk and default management, and announces a final compliance date of September 30, 2015 - CPB993c: Firm Exposure Report (CSV-format)
Produced every hour from 5am to 6pm CT, this CSV-format report provides firms with a real-time snapshot of unrealized variation losses or gains, together with increases or decreases in performance bond (initial margin) requirements, together with the degree of undercoverage if variation losses and/or initial margin increases are not already covered by an excess of collateral on deposit. - Joint Audit Committee #19-02: Combining Accounts for Margin Purposes
This JAC Regulatory Alert serves as a reminder to FCMs of certain requirements established in exchange rules, the JAC Margins Handbook, and regulations of the Commodity Futures Trading Commission requiring the combining of accounts for margin purposes specifically with regards to the release of excess margin funds.
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