Buy side still prefers bilateral repo despite LCH margin update
New model will cut margin faster after stresses abate, but costs still high for directional trades
Market participants are hopeful that LCH’s margin model overhaul for its UK RepoClear unit will help initial margin (IM) calls to normalise faster after stress events recede, but warn that that might not be enough to draw more buy-side firms into central clearing for repo trades.
“The model change by LCH RepoClear will improve the current position,” says Rosa Fenwick, head of core liability-driven investing (LDI) portfolio management at Columbia Threadneedle Investments. “However, IM requirements
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