Acceptable collateral provided by clearing members is subject to a reduction in value (haircut) for margin cover purposes depending on the form of collateral provided.
LME Clear will determine the criteria for acceptable collateral and collateral haircuts in line with regulatory requirements and its own risk policy.
Our haircut methodology is designed to enable stable haircuts, avoid procyclicality and offer protection in stressed market conditions.
It is based upon a weighting between a VaR calculation and the capture of stress periods. Greater weighting towards VaR if current conditions are volatile, greater weighting towards stress periods if current conditions are benign.