LCH RepoClear and Euronext have concurrently launched Value at Risk (VaR) methodologies across the respective debt markets they clear.
LCH’s VaR methodology covers the 13 Euro debt markets that it clears and is based on three key pillars: better recognition of diversified portfolios; adjusted anti-procyclical measures to support stability and predictability of the margin requirement; and an enhanced capacity to adapt to market volatility.
The VaR based framework went live on Monday and falls in line with RepoClear SA’s aim to improve margin efficiency by allowing members with diversified and balanced portfolios to reduce costs and direct resources to adapt to changing market dynamics.
The VaR model will also be applied to LCH SA’s €GC+ segment when it integrates with RepoClear SA in the fourth quarter of this year.
“Through its anti-procyclical features LCH SA’s new margin framework provides the market with stability and predictability in periods of market volatility,” said Olivier Nin, head of first line risk, RepoClear, collateral and liquidity, LCH SA.
“The model, based on both historical and theoretical events, also enables LCH SA’s members to materialise diversification in their portfolios when trading and clearing across multiple debt markets.”
Elsewhere, Euronext Clearing has also introduced the VaR-based margin methodology on government bonds traded on MTS cash and repo platforms and BrokerTec and on MOT, EuroTLX and Hi-MTF platforms.
The new VaR framework, which also launched on Monday, falls in line with the European expansion of Euronext Clearing and the firm’s “Growth for Impact 2024” strategic plan.
Euronext’s VaR-based margin methodology focuses on Italian, Portuguese, Spanish, and Irish government bonds. The move comes as part of the ongoing evolution of Euronext Clearing Risk Management systems and will replace the MVP SPAN-like margin methodology which is currently applied to all bond instruments.
“Euronext Clearing is committed to supporting the needs of its clients to ensure they continue to operate efficiently and safely across all markets,” said Anthony Attia, global head of post-trade and primary markets at Euronext.
“The new VaR-based margin methodology, in line with the international best practices and market standards, is based on a re-evaluation of more than 4,000 risk factors’ scenarios at portfolio level.”