SwapClear has two types of clearing members: SwapClear Clearing Members (SCMs) and FCM Clearing Members (FCMs).

SCMs are direct Clearing Members that can clear proprietary business and also non-U.S. domiciled client business.

Futures Commission Merchants (FCMs) are direct Clearing Members that can clear proprietary business for their own account, U.S. domiciled client business and also non-U.S. domiciled client business.

The FCM membership type was added to meet the requirements of the Commodity Exchange Act, and as subsequently amended by the Dodd Frank Act, which requires Clearing Members that clear for U.S. domiciled clients to be registered as FCMs.

Membership Criteria

Requirement FCM SCM
Initial Enquiry

Enquiries regarding Clearing Member status should be directed to LCH’s Onboarding Team, which will be able to confirm whether the enquirer meets the minimum criteria for such status. Enquirers are requested to provide the following:

  • The most recent annual financial statements along with any interim statements that show the current financial position.
  • Details of any implicit or explicit support available from group or external entities.

Following receipt of this information LCH will carry out a review to ensure that the enquirer meets the minimum requirements for Clearing Member status; this review considers factors such as external market data, financial position and any support arrangements in place.

Completion of Application Documentation

Following confirmation that the enquirer meets the minimum criteria, the application process is initiated by completing the relevant documentation, which is provided in an Onboarding pack issued by the Onboarding Team.

Regulatory Status

Within their corporate group, Clearing Members must have at least one banking institution, credit institution, securities firm, investment banking firm or similar entity licensed by the competent authorities of the United States or a member state of the European Union, or the equivalent of a banking institution, credit institution, securities firm, investment banking firm or similar entity licensed by the competent authorities of a country outside the United States and the European Union and which is subject to prudential rules considered by the Clearing House to be at least as stringent as those applicable to banking institutions, credit institutions, securities firms, investment banking firms or similar entities, as applicable, within the United States or the European Union. In addition an FCM Clearing Member must be registered with the CFTC as a Futures Commission Merchant. The FCM Clearing Member must be incorporated or otherwise governed under the laws of a state within the United States.

Net Capital

All Clearing Members must have a minimum of adjusted net capital of $50 million.

Financial Commitments

Funded Contribution
All Clearing Members will be required to contribute, in cash, to the segregated Rates Service Default Fund, the amount of which will be based upon:

For SwapClear Global Service

  1. A risk weighted Default Fund contribution of at least £10m per Clearing Member
  2. An additional Default Fund for Registration Tolerance of between £3m and max £30m per Clearing Member

All contributions are risk weighted and are re-calculated each month.

Unfunded Contributions
SwapClear Clearing Members are obliged to provide additional unfunded Default Fund contributions limited to one unfunded assessment per Clearing Member default to a maximum of three in six months.

Due diligence/ Approval

The application process for new Clearing Members may include a due diligence visit at the applicant's offices. The purpose of this meeting is to discuss corporate structure and strategy; the scope of the new Clearing Member's business generally and clearing activities specifically (planned and current); financials; regulation; operational processes; banking facilities; and risk management (of clients and any proprietary business, margining, credit management policy, stress testing, etc.)

Clearing Member applications will be reviewed and approved by the LCH Risk Committee.

Operational Requirements/ Default Management Participation

All Clearing Members [or group*] must participate in a 'driving test' to demonstrate operational capability during default. It will test the Clearing Member’s ability to load, price and bid on a fixed number of trade sides

Clearing Members may outsource their default management process (DMP) obligations to an affiliated Clearing Member entity or an Approved Outsourcing Agent

SwapClear will consider Clearing Member 3rd party outsourcing arrangements on a case-by-case basis on the proviso that all outsourcing conditions are met

* Group – a defined set of affiliated Clearing Member entities

Training

LCH requirements state that at least two personnel are fully conversant with clearing procedures, and detailed training will be provided free of charge for all new Clearing Members. For further details of training, please refer to the Training Curriculum. Please send any queries relating to Clearing Member training to onboarding@lch.com


Contact Details

For further details, please contact the Onboarding team:

Tel: +44 (0)20 7426 7949
or email: onboarding@lch.com