Euronext and LCH Adopt New VaR-Based Margin Framework

Euronext Clearing, the multi-asset clearing arm of Euronext, and LCH RepoClear SA, the France-based repurchase agreement (repo) and cash bond clearing subsidiary of LCH Group, have both adopted a new Value at Risk (VaR) margin methodology.

Both entities announced the development in separate press statements released on Tuesday.

VaR margin is a measure of risk used to estimate the probability of loss of value of a share or a portfolio. This is usually based on the statistical analysis of historical price trends and volatilities.

The new VaR framework went live on both platforms on Monday, they disclosed in the statements.

While Euronext said the framework was applied to its Italian, Portuguese, Spanish and Irish government bonds, LCH disclosed that its enriched VaR risk methodology was applied across its 13 Euro debt markets.

More on Euronext’s VaR Margin

Euronext Clearing, previously known as CC&G, noted that the new methodology applies to government bonds traded on its MTS cash and repo platforms.

MTS Cash is a comprehensive and professional cash securities trading environment for the interdealer marketplace.

In addition, the framework applies to bonds traded on BrokerTec, an anonymous dealer-to-dealer electronic trading platform for fixed income markets, Euronext said.

MOT, EuroTLX and Hi-MTF platforms are also included, the firm said in the statement.

Meanwhile, Euronext explained that the VaR framework is a “first major step” towards its expansion of Euronext Clearing across Europe.

On top of that, the move marks an important milestone of the exchange group’s 'Growth for Impact 2024' strategic plan, it said.

“The introduction of the new methodology falls under the next-to-come market best practice, following state of the art risk principles and parameters,” Euronext added in the statement.

Anthony Attia, the Global Head of Post Trade and Primary Markets at Euronext, further noted that the new VaR-based margin methodology is based on a re-evaluation of more than 4,000 risk factors’ scenarios at portfolio level.

“Euronext Clearing is committed to supporting the needs of its clients to ensure they continue to operate efficiently and safely across all markets,” Attia said.

More on LCH’s VaR Margin

For its part, LCH RepoClear SA explained that its VaR risk framework is part of its efforts to improve margin efficiency.

The framework, it explained, offers better recognition of diversified portfolios and supports stability and predictability of the margin requirement.

Moreover, it supports enhanced capacity to adapt to market volatility, it said.

Olivier Nin, the Head of First Line Risk, RepoClear, Collateral and Liquidity at LCH SA, explained that the new margin framework provides the market with stability and predictability in periods of market volatility through its anti-procyclical features.

“The model, based on both historical and theoretical events, also enables LCH SA’s members to materialize diversification in their portfolios when trading and clearing across multiple debt markets,” Nin explained.

Furthermore, LCH disclosed that the VaR model will apply to LCH SA’s €GC+ segment following its integration with RepoClear SA in the fourth quarter of this year.