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.
ISVs and VaR
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:
Broadridge Financial Solutions Ltd
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 email our TAM team.
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.
VaR information in Chinese
LME Clear 保证金算法的改变对你意味着什么.