The way in which CCPs manage Members' and Clients' assets is one of the key areas of focus for regulators. In Europe, EMIR and UK EMIR have been designed to reduce counterparty risk and increase transparency within the markets.
LME Clear offers Members a choice of Individually Segregated and Omnibus Segregated accounts. Click here to find out more about the choice of accounts that LME Clear offers to Members.
A Member may maintain a variety of different Client accounts – one or more Omnibus Segregated Client Accounts ("OSAs") in which the relevant Respective Entitlements arising from Contracts entered into by the Member on behalf of one or more of its Clients will be recorded (as opposed to Contracts entered into by the Member for its own account). Collateral for Contracts recorded in an OSA is required and maintained on a net basis (and not a gross basis).
A Member may maintain with LME Clear one or more Individual Segregated Client Accounts ("ISAs") as detailed here.
Each Member is solely and directly liable for all the obligations owed to LME Clear in respect of each Account established for the Member. Each Account established by a Member is to be segregated in the books and records of LME Clear from each other Account, so that the Contracts, Positions, Collateral and other rights and obligations arising from Contracts allocated to any one Account (the “Respective Entitlements”) is segregated and distinguished from similar respective rights and liabilities allocated to any other Account established by the Member.
Where a Member has one or more Accounts, the arrangements under Rule 8 (Margin Requirements and Collateral) for the calculation of the Member's Margin Requirement are to be applied separately to each such Account.
It is the sole responsibility of each Member to determine and establish the appropriate number and types of Accounts with LME Clear in order to enable the Member to satisfy its legal and regulatory obligations as well as its obligations under the Rules. This includes:
(a) any obligation on a Member to record the relevant Respective Entitlements to a Client Account, or to establish separate OSAs or ISAs, in order to comply with any client money requirements under Applicable Law applying to the Member;
(b) any obligation of a Member to record LME Clear's and the Member's respective rights and liabilities arising from Contracts arising from Transactions or Contracts effected or cleared for a Client or any Indirect Client, to an ISA, in order to comply with the provisions of the UK EMIR or other Applicable Law applying to the Member; or
(c) any obligation of a Member to ensure that collateral provided by Clients is recorded or segregated in such a manner as enables the Member to be able to identify the person to whom such collateral (or equivalent assets) is returnable upon release from any charge created over it by the Member in favour of LME Clear (pursuant to Rule 8.5).
The fees associated with the maintenance of Client Accounts are detailed here.
Members are required to make certain disclosures to their Clients and the Mandatory CCP Provisions can be found here.
Porting of Client Accounts
The LME Clear Rules provide for the portability of Client Accounts upon the default of a Member, in accordance with LME Clear's obligations under UK EMIR. The portability rules are set out in Rule 10.7 and Default Procedure Part D (Porting Procedure).
Under the portability rules, in the event that a Member becomes a Defaulting Member, the Clients allocated to a particular Client Account can request that the assets and positions recorded to that Client Account be transferred to a new Client Account with a non-defaulting Member. Where the Client Account is:
(a) an ISA, this process can be initiated by the single Client allocated to that Account; or
(b) an OSA, this process must be initiated by all Clients allocated to that Account.
LME Clear may also decide to facilitate Partial Transfers from an OSA in its discretion.
The porting process can be initiated in one of two ways:
(a) automatically by LME Clear, where the Automatic Porting Process applies to a Client Account; or
(b) for any other Client Account, on receipt by LME Clear of a Porting Request Notice as mentioned in Annex 6 A to the Rulebook, submitted by all Clients allocated to the Client Account.
The Porting Request Notice can be found here: LMEC Porting Request Notice