Barclays has launched an enhanced Legal Segregation with Operational Commingling (LSOC) with Excess model at CME Clearing for its over-the-counter (OTC) derivatives clearing clients.
Barclays has worked closely with multiple clearing houses to develop and meet client demand for an enhanced LSOC with Excess model, which allows client-specific excess value to be used to cover margin requirements, including a client’s variation loss.
Clients will benefit from a stronger level of collateral protection on excess balances held at the clearing house and greater operational simplicity.
“The enhanced LSOC with Excess model means that we can not only offer clients an added level of protection on their collateral, but also improve the efficiencies of the daily margin process,” says Ray Kahn, head of OTC derivatives clearing. “We are pleased to have worked directly with CME Clearing to develop and go live with clients on this enhanced offering, which simultaneously meets regulatory objectives and simplifies operational processes. Barclays believes this is a key step in developing additional customer segregation requirements globally. We look forward to extending enhanced LSOC with Excess to additional clients that are considering ways to obtain greater customer protection.”
"CME is pleased to bring the benefits of our LSOC with Excess service to Barclays’ clients,” says Edward Gogol, managing director, clearing architecture at CME Clearing. “This ‘LSOC with Excess’ service is an important improvement in both collateral efficiency and enhanced customer protections. We look forward to partnering with Barclays and buy-side clients to develop additional collateral efficiency enhancements in the coming months."
The LSOC with Excess model gives clients the ability to ensure their excess collateral is held at the clearing house and not at the clearing broker. LSOC fundamentally changes how clearing brokers and clearing houses handle swaps clearing and associated client collateral. Under LSOC, customer margin may be maintained in an operationally commingled account at the clearing house, however the value of the collateral is identified for each customer and can only be used to cure the shortfall of that customer in the event of a client-led default of a clearing broker.