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October 20, 2011

LCH now takes KfW bonds as collateral

LCH have announced (http://www.lch.co.uk/member_notices/circulars/2011-10-20.asp) they will now take bonds issued by KfW as collateral against their many clearing services. KfW is equivalent to a US “GSE”, a government sponsored entity, so can be considered as safe as a government issue.

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From November 1, 2011, bonds issued in EUR by the Kreditanstalt für Wiederaufbau (KfW) will be accepted by LCH.Clearnet Limited (LCH.Clearnet) for the purposes of margin collateral.

This addition to acceptable margin collateral will be subject to the following criteria:

  • Continuing explicit and unconditional guarantee provided by the Federal Republic of Germany.
  • The application per clearing member of a concentration limit, set at the lower of 20% of total margin requirement, excluding variation margin, or EUR 500million.
  • A further concentration limit of 10% of the total amount outstanding on any acceptable ISIN applied at a clearing member level.
  • A managed ISIN list requiring appropriate nominal size and sufficient market price quotes for each issue, all as determined by the Risk Management department of LCH.Clearnet.

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