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LCH to cut jump-to-default margin for cleared CDS
Move could bring margin for cleared CDS closer to bilateral trades, but mismatch remains
![Shrinking-margin-differential Shrinking-margin-differential](/sites/default/files/styles/landscape_750_463/public/2019-10/Shrinking-margin-differential.jpg.webp?itok=L3ZS1tYd)
UK clearing house LCH is preparing to change the way it sets margin for jump-to-default risk in credit default swaps, a move that could shrink the margin differential between cleared and bilateral trades, and lay the ground for clearing of contracts referencing the subordinated debt of financial firms.
Jump-to-default – a measure of loss incurred on a CDS if the reference entity declares a credit event – is part of margin models at both LCH and rival clearing house Ice. The risk is not included
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