LCH made the comments in an e-mailed statement today.
“We use an internal benchmark of AAA which is broadly representative of European government bonds.
‘‘Any change in the relationship between government security and the benchmark which are driven by changes in the benchmark, do not affect the ‘riskiness’ of the underlying security. In such circumstances an increase in the spreads would not be indicative of an increase in risk and is likely therefore to be disregarded.
‘‘Our risk managers are pragmatic and use their discretion, based on a number of factors, to determine when a raise in margin is required.
‘‘The spread we monitor markets against is a representative AAA benchmark for European government bonds with 10 year maturity.
‘‘The benchmark is calculated internally and broadly represents the yield levels of AAA countries.
‘‘We would always seek to use a benchmark that is broadly representative of AAA yield levels.’’
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