Value-at-Risk (VaR) Margin Methodology


Following discussions with and feedback from LME members and their clients, LME Clear has announced its intention to implement Value-at-Risk (VaR) margin methodology for the calculation of initial margin. This project has been postponed and we will communicate updated timelines in due course.

What is VaR?

VaR is a widely adopted risk methodology, used in many asset classes by various central counterparties and other financial institutions.

Each organisation which decides to adopt a VaR-based margin model needs to ensure that the model of choice is fit for their market's particular requirements in accordance with the regulatory requirements that the organisation is subject to. To achieve this, LME Clear has not only gone through a thorough model selection process for the right composition of our VaR model, but we have also customised the model to fit the unique characteristics of the LME market. All the model parameters and customisation choices have been through a thorough third party independent validation prior to receiving the regulatory non-objection.

As part of our market-wide Discussion Paper engagement process, we outlined the analysis we’ve undertaken into whether members and clients would benefit from a custom-designed VaR methodology to calculate initial margin for the LME market. Both the analysis and the Discussion Paper feedback confirmed that members and their clients are keen for the LME to move to a VaR-based methodology.

We will update this page as frequently as possible and communicate any changes or further information via the usual channels. Please bookmark this page and check back for more details.

We have created two working groups which have been involved with the initial formative stages of the project, and will continue to provide vital input into the process: the VaR Implementation Working Group and the VaR Methodology Working Group. These groups will provide industry input and feedback on the methodology approach, requirements to ensure a smooth transition and the information required by members and clients. Information from the working groups will be shared wherever possible to ensure transparency on our discussions and approach.

VaR Implementation Working Group

Representatives from across our member firms and ISVs have joined the VaR Implementation Working Group, which runs on a regular basis to discuss the LME’s approach to VaR, and to gather feedback on the methodology, timelines, the transition process and the information that will be made available to members and their clients throughout the process.

Attendees are intended to be representative of the wider LME membership and ISVs.

VaR Methodology Working Group

The VaR Methodology Working Group is open to all clearing members and ISVs to attend. These meetings focus on the more technical aspects of the methodology changes including the how margins will be calculated under VaR. Attendees are generally technical experts from member risk teams and ISV representatives.

LME CLEAR 保证金算法的改变对你意味着什么. 

关于LME Clear改用「风险价值」(VaR)计算初始保证金的简介

VaR是很多清算所以及其它金融机构在评估不同类型资产风险值时所普遍采用的风险计算方法。根据LME Clear的分析结果显示,若使用针对于LME市场所量身订制的VaR模型来计算LME市场的初始保证金,LME的会员及客户普遍会因为这一更加有效的风险计算而受惠。我们在《LME战略讨论文件》中亦有阐述这一点,而所得到的市场反馈表示会员及其客户非常支持LME转用VaR计算其初始保证金。LME在其《战略路径》中进一步确定了此计划。

Our Technical Account Management (TAM) Team have been engaging with our ISV community, outlining the new methodology and the changes this will bring for member firms and their clients, and what ISVs will need to do to get ready for the transition.

The following Back Office ISVs have been most closely involved in the LME VaR project to date:

Brady plc
Broadridge Financial Solutions Ltd
FIS Global
ION Group
Microgen Financial Systems

If you have any questions about the move to the new margin methodology and would like to discuss these from an ISV perspective, please contact our TAM team.

Contact us

For further information about VaR please get in touch with the team