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LME contracts between clearing members are cleared and margined by LCH.Clearnet.
LCH.Clearnet set the initial margin rates and these will vary across the commodities traded on the LME. They may also change the initial rate from time to time depending on volatility. LCH use a system known as SPAN margining. This means that each day, brokers’ positions are evaluated and they request any maintenance margins required against their overall net position. However, LME margins can be covered by collateral rather than cash. Collateral can be in various forms – bankers guarantees or LME warrants for example.
Brokers will also margin their customers. Under LME rules, these margins will be at least equal to the LCH rates but they may well be higher depending on the same factors used for contractual terms. LME brokers can issue credit lines to their customers and may accept collateral for margining. Of course if margins are covered by cash, then this cash should earn interest for the customer while it is held by the broker.
For details of the current margining rates visit The LCH.Clearnet website.
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