LME Clear is designing a Unilateral Risk Free Post Trade Compression service for forward and swap contracts. Compression will result in the termination of the old contracts and creation of a new contract(s). The service will be optional for Members.
Compression through LME Clear enables Clearing Members to compress House and Client contracts and reduce the overall notional value and number of line items without changing the overall risk profile of the compressed trades. Compression allows Members and clients to combine or offset trades with compatible economic characteristics, resulting in a reduction in notional outstanding. Simplified portfolio management is achieved by allowing Members and clients to reduce the number of individual positions in the portfolio, while maintaining the same risk profile. This requires fewer reconciliations, delivers more efficient portfolio transfers and, in some cases, may enable financial institutions to lower their capital requirements under Basel III.
We have produced a LME Clear Compression Service Description.
Please note the proposed changes only effect those that plan to use the new optional service. Current Rules and Procedures are otherwise not impacted. For those that use the service, additional Rules will be added to the Rulebook in due course.