LCH.Clearnet’s SwapClear service has scrapped rules that base margin multipliers – and the mechanism by which clearing members are kicked out of the clearing house – on external credit ratings. With banks facing sweeping downgrades, the overhaul removes a potentially explosive source of pro-cyclicality from the system.
“We always found it a slightly bizarre methodology. It was initially designed to keep out institutions of really low credit standing, but it certainly didn’t contemplate the downg
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