International Derivatives Clearing House

In December 2008, IDCG's subsidiary the IDCH, began accepting U.S. dollar denominated Interest Rate Swap (IRS) contracts for clearing and settlement. Today, this structure provides customers with an efficient and transparent venue to clear and settle interest rate derivatives. Contract Specifications may be found in the IDCH Rulebook.

Rules of International Derivatives Clearinghouse, LLC

As a member of the IDCH, trading, investment, and market-making firms are able to clear and settle new and existing OTC interest rate swap contracts traded bilaterally with dealers.

Market participants who clear through IDCH reduce bilateral counterparty credit risk and simplify the ongoing processes required to manage such relationships. The substitution of bilateral counterparty credit risk with a regulated clearinghouse enables a much greater number of market participants to interact with one another with greater confidence.

Contract Details

Please refer to the Rules of the International Derivatives Clearinghouse for complete OTC contract specifications.

Rules of International Derivatives Clearinghouse, LLC

Transaction Comparison

*According to ISDA 2007 Derivatives Benchmark Survey

The clearinghouse implements the HS VaR methodology to calculate its initial margin requirements, which are based off of a 5-day holding period at a 99.7% confidence interval. As part of its HS VaR methodology, IDCH uses its historical market data to calculate cumulative 5-day shocks (as a percentage factor) to apply to the most recent Official curve, giving an array of shocked official curves. This process is repeated for all Official curve points across 500 days of shocks. The value of the portfolio priced using the un-shocked Official curve acts as a baseline valuation. This baseline valuation is compared to the post-shock portfolio value for 500 days in the past, producing an array of 5-day price changes for the portfolio over the last 500 business days. The absolute value of each of the 500 price changes is taken to create a non-directional measure of the price sensitivity of the portfolio.

Each portfolio is calculated in this manner for the most recent 30-, 90-, 125-, 250-, and 500-day periods. A 99.7% confidence interval represents the average plus three standard deviations and is calculated for the 30- through 500-day time periods, representing the minimum initial margin that IDCH would charge for each time period. The maximum of the margin charges across all of the time buckets is set as the baseline that IDCH would charge as IM for the portfolio, but IDCH has the ability to apply an additional margin factor per-clearing member above and beyond the minimum IM requirement to address any solvency or liquidity concerns if necessary.

Original Performance Bond (Initial Margin) will be calculated on a net basis for OTC Contracts cleared in a Clearing Member's Proprietary Account.

Original Performance Bond (Initial Margin) for OTC Contracts cleared in a Clearing Member's OTC Customer Segregated Account will be calculated on a gross basis.

The clearinghouse bases the size of its Guaranty Fund according to the following guiding principles:

Minimum Size: $80 Million or the greatest amount of initial margin held at the clearinghouse over a period of three consecutive days, during the last 500 trading days is determined. Those three days are then averaged and the result is multiplied by 5%. The guaranty fund is then risk-adjusted on a pro rata basis across all clearing members.

In addition to that minimum, the Guaranty Fund's size will reflect the greater of:

On a daily basis, the Risk Department subjects each Clearing Member to eight stress tests in order to calculate the resources required in the Guaranty Fund. The stress tests are defined as two historical simulations and six defined revaluation shock scenarios. The worst case for every Clearing Member is determined using the aforementioned stress tests. Once the worst case is determined, the Clearing Members are ranked according to the risk that each would present to the Clearinghouse in case of its default. The simultaneous default of the two largest Clearing Members, in terms of risk, is simulated. In addition, a third default will be simulated using Clearing Member selected from the pool of non-defaulting members.

In each case, the resulting defaults are simulated over a five-day cure period. The sufficiency of the Guaranty Fund is designed to cure the defaulting Clearing Members' positions within the five-day period. If the result of the stress tests shows that the Guaranty Fund is insufficient over the five-day cure period, the Guaranty Fund requirement will be increased to a level such that the stress test is satisfied.

*These stress test are run on a daily basis, with risk adjustments made quarterly unless market conditions warrant an intra-quarter adjustment

In accordance with the IDCH Interest Rate Swap Contract Specification, payment dates are defined by the contract's Effective Date, Maturity Date, Payment Frequency and Payment Conventions of the fixed or floating legs as appropriate. A Goood Business Day is defined as a day in which the banking system is open to settle payments in the locations specified.

Following is a list of known New York and London holidays on which payments may not occur.

IDCH Membership

A participant must have a relationship with a member of the Clearinghouse in order to clear Interest Rate Derivatives with IDCH.

For Inquiries regarding IDCH Membership:
Email: sales@idcg.com
Phone: 212.933.9801

Rules of International Derivatives Clearinghouse, LLC

Fee Schedule

IDCH Bulletins

IDCH Notice to Members