This blog post was originally published on TabbFORUM.
New rules have recently come into effect that have substantively changed the customer collateral asset protections relevant to central clearing.
Specifically, the Dodd-Frank Act prescribed that the CFTC adopt rules that provide for enhanced protections of cleared swaps customer margin collateral. The mandate is known as “legal segregation with operational commingling,” or LSOC. LSOC provides a fundamental change in how futures commission merchants (FCMs), as members of central clearing counterparties (CCPs), must manage customer margin collateral.
As a result of these rules, there was an initial flurry of activity to automate compliant processes. For instance, the first phase simply provided a bridge whereby FCMs reported excess collateral without reaching individual-customer-level granularity.
