"A New Model for Treating Cleared Swaps Collateral" by Julia Lu and John Clark published by Law360

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February 10, 2012

A memorandum by Richards Kibbe & Orbe LLP attorneys Julia Lu and John A. Clark was featured as a Law360 expert analysis piece under the title "A New Model for Treating Cleared Swaps Collateral."

The CFTC believes the collateral segregation model referred to as “legal separation with operational commingling,” or “LSOC,” will enhance the transferability of non-defaulting swap end-users’ positions and collateral from failed to solvent dealers while substantially protecting customers from the defaults and collateral shortfalls of fellow customers. However, LSOC is not a remedy for all risks posed to the pledged assets of swap customers. Ms. Lu and Mr. Clark provided background on the mechanics of swap clearing and collateral segregation, described the CFTC’s final rules and identified the protections offered and risks allocated by LSOC to participants in the cleared swaps market.

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