On Dec. 20, LCH LTD confirmed MXN 28D-TIIE conversion approach.
LCH LTD issued outcome of consultation on conversion of outstanding cleared MXN 28D-TIIE contracts, confirmed that it will go ahead as proposed in its consultation.
Consultation
On Nov. 17, 2023, LCH LTD invited all SwapClear users to respond to a consultation on treatment of outstanding MXN 28D-TIIE SwapClear contracts and their potential conversion into, or replacement with, corresponding F-TIIE-based SwapClear contracts.
Proposed that this take place at or around Dec. 31, 2024, sought input from users.
Outcome
Unanimous support for an MXN 28D-TIIE conversion event around Dec. 31, 2024.
Most respondents agreed with proposed conversion approach whereby 28D-TIIE trades relying on fixings occurring after Dec. 31, 2025 will be subject to LCH conversion, with overlay bookings generated accordingly, LCH LTD will therefore go ahead as proposed.
LCH LTD proposed valuing MXN 28D-TIIE SwapClear contracts subject to conversion process for cash compensation purposes by using projections of 28D-TIIE rates based on the new methodology set by Banxico for fixings beyond the end of 2024.
Involves calculating 28D-TIIE rate as forward-looking value by compounding projected F-TIIE on day before reference day being determined and adding a spread adjustment.
Backed by user consensus LCH will move ahead with proposed valuation methodology.
Will also move ahead as proposed with target design principles, that is, the generation of backward-looking F-TIIE contracts as target conversion SwapClear contracts.
Modeled to greatest extent possible on F-TIIE OIS conventions with the application of a 24 basis points spread adjustment on the floating leg of the converted trade.
Confirms timeline, conversion date Nov. 23, 2024, contingency date of Dec. 7, 2024.
Next Steps
LCH will move forward with the approach to conversion set out in its consultation.
SwapClear participants can now treat as final, further briefing calls will be arranged by LCH to allow users to familiarize with process, will release further operational details.
Approach and process remain subject to risk governance, legal and regulatory review.
In Feb. 2024, LCH LTD detailed changes to cleared contract conversion, see #201571.
