On Feb. 11, 2025, UK LME Clear issued a Rule Change Notice, issued in response to comments which UK LME Clear received regarding the consultation on initial proposals.
The Notice sets out decisions of UK LME Clear relating to proposals in the consultation, with some detailed responses provided in the section LME Clear Action Plan Changes.
Some comments were on matters outside the scope of consultation and are therefore not addressed in the Notice, but UK LME Clear did respond directly on these matters.
UK LME Clear carefully considered feedback received, and decided to proceed with the changes to the UK LME Clear Rules that were proposed in the consultation, with one minor drafting amendment in response to consultation feedback, within paragraph 19.
Annexed to the Notice are a clean version of the amended UK LME Clear Rules, set out in Appendix 1, and a series of blackline excerpts showing all of the amendments being made to the UK LME Clear Rules through the Rule Change Notice, made in Appendix 2.
Amended version of UK LME Clear Rules in Appendix 1 will be in effect Feb. 28, 2025, except for all those on minimum Net Capital, which will come into effect May 12, 2025.
The rule changes to Default Fund calculation will impact Members at the next monthly recalculation of Default Fund and adjusted amounts notified to Members, Mar. 3, 2025.
On Nov. 14, UK LME, LME Clear consulted on changes to rulebooks.
UK LME, LME Clear consulted on measures to further bolster market resilience.
Purpose of Measures
Proposals include increasing minimum net capital requirement for members and introducing a default fund mutualization limit and anti-procyclicality control.
UK LME reviewed membership terms and proposes to enhance credit-related requirements by increasing clearing members’ minimum net capital requirement.
This will increase from US$10mn to US$30mn, and this proposal would better align member capital requirements with those of peer central counterparty clearing (CCPs).
Also, reassures market stakeholders of the resilience of UK LME markets.
Default Funds
On its default fund methodology, UK LME proposes to move further towards a defaulter pays model and introduce an upper limit to the default fund, accordingly.
Measure would restrict size of mutualized component of the pre-funded resources paid by clearing members, ensuring proportion of mutualized risk is proportionate.
Specifically, ensuring mutualized risk is fairly and more stably correlated with unmutualized risk, which is calculated by UK LME as initial or additional margin.
Limit would also be calculated as per published default fund methodology, providing transparency and determinism to the calculation process, according to UK LME.
Procyclicality measure
UK LME proposes an anti-procyclicality control to improve the stability of the default fund, limiting percentage by which default fund can fall in any one re-calculation.
Also, this would work with the default fund limit to ensure member contributions are more stable and predictable, and UK LME also proposes minor rulebook revision.
UK LME rulebook revision refines Category 5 membership as well as a number of technical and administrative changes to UK LME rules and procedures.
Effectiveness
Comments can be submitted by Dec. 16, 2024.
Dec. 2024 Consultation Closed, Next Steps
On Dec. 18, 2024, UK LME Clear reported rules consultation on minimum net capital, default fund mutualization threshold, default fund anti-procyclicality measure is closed.
LME Clear is considering responses and will issue a Rule Change Notice in due course.
Feb. 11, 2025 Rule Change Notice
On Feb. 11, 2025, UK LME Clear issued a Rule Change Notice, issued in response to comments which UK LME Clear received regarding the consultation on initial proposals.
The Notice sets out decisions of UK LME Clear relating to proposals in the consultation, with some detailed responses provided in the section LME Clear Action Plan Changes.
Some comments were on matters outside the scope of consultation and are therefore not addressed in the Notice, but UK LME Clear did respond directly on these matters.
UK LME Clear carefully considered feedback received, and decided to proceed with the changes to the UK LME Clear Rules that were proposed in the consultation, with one minor drafting amendment in response to consultation feedback, within paragraph 19.
Annexed to the Notice are a clean version of the amended UK LME Clear Rules, set out in Appendix 1, and a series of blackline excerpts showing all of the amendments being made to the UK LME Clear Rules through the Rule Change Notice, made in Appendix 2.
Amended version of UK LME Clear Rules in Appendix 1 will be in effect Feb. 28, 2025, except for all those on minimum Net Capital, which will come into effect May 12, 2025.
The rule changes to Default Fund calculation will impact Members at the next monthly recalculation of Default Fund and adjusted amounts notified to Members, Mar. 3, 2025.
