The US clearing house that provides central counterparty clearingandsettlementservices to 14 exchanges is proposing changes to the measurement it uses to establish minimum capital requirements for banks approved to issue letters of credit (L/Cs).

Clearing members may deposit L/Cs with Chicago-based Options Clearing Corporation (OCC) as a form of margin asset.

Tier 1 Capital

Currently, OCC rules require US banks to have US$100,000,000or more in shareholders' equity, and non-US banks to have US$200,000,000or more in shareholders' equity, in order to be approved as an issuer of L/Cs that may be deposited by clearing members to meet their margin obligations.

Now that Tier 1 Capital is an acceptable benchmark for bank financial reporting standards, the OCC is proposing to substitute Tier 1 Capital for shareholders' equity.

Member default

The OCC has published its proposal in a notice to solicit comments on the proposed rule change from interested persons.

The purpose of these minimum capital requirements is to ensure that issuers that deposit L/Cs as a margin asset have the ability to honour a demand for payment should a need to do so arise, such as in the case of a clearing member default.

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