SwapClear changes expulsion rules

Clearer will no longer boot out member firms when they drop below BBB threshold. Downgrades planned by Moody's Investors Service could have left Morgan Stanley a notch away from expulsion

LCH.Clearnet’s SwapClear service has scrapped rules that base margin multipliers – and the mechanism by which clearing members are kicked out of the clearing house – on external credit ratings. With banks facing sweeping downgrades, the overhaul removes a potentially explosive source of pro-cyclicality from the system.

“We always found it a slightly bizarre methodology. It was initially designed to keep out institutions of really low credit standing, but it certainly didn’t contemplate the