Globex Credit Controls - Credit Enforcement

The current Globex Credit Controls (GC2) risk system is being enhanced to improve the mechanism for checking new orders for available credit. This topic describes these details and enhancements. 

Contents

Enhancement Overview

The existing method divides the available credit (GC2 exposure limit - GC2 exposure utilization for the day) by the “average margin rate” of contracts traded for the week to calculate an allowable order quantity (i.e., a “clip-size” limit) for the next incoming order. The new method will calculate the margin requirement of the incoming new order, using the margin rate of the contract (or contracts) in the order, and compare this requirement with the available credit. If requirement is less than or equal to the available credit, the order will be accepted; otherwise, it will be rejected.

This change in the enforcement method for GC2 will avoid potential cases in which the calculated order clip-size limit is based on an average margin rate that is much less than the margin rate of the incoming order causing the order to be accepted and resulting in a breach of the GC2 limit when the order trades out and actual margin rates are used. With the new enforcement feature, the order’s actual margin requirement is checked against the available credit at order entry time. This new enforcement method will reduce the potential for a breach of the GC2 limit. 

In addition, changes are made to the way margin utilization of Option orders and trades will be computed. The existing method utilizes a SPAN-based margin value, per option contract, that is determined once per week at the end of the week and that value is used for the following week. With upcoming change, Option orders/trades will be converted into futures equivalent orders/trades using the Option’s delta value that is updated daily at end-of-day (EOD), and the Option order/trade will be charged a margin amount based on the Futures equivalent position using the underlying Future’s margin rate. The basic calculation for option credit utilization will be: (option utilization = option delta x option order quantity x underlying futures margin rate). Therefore, the exposure requirement to trade an option contract may change during the week to the extent that its futures equivalence and/or underlying futures margin may change from day to day. 

Order Reject Text Enhancement

Currently iLink Order reject due to GC2 violations are denoted with generic text "Order exceeds clip size ##".

The reject text is being updated with additional details of GC2 violation.

Changes to GC2 Credit Setting User Interface

The GC2 - Manage Limits screen will be updated to remove ability to change the Margin Rate fields highlighted below:

Futures Clip Size Calculations

Following is an illustration of changes to Clip size calculations

Assumptions

Futures Exposure Limit: $1,000,000

Margin rates:

Order History

Total Quantity: 20

Total Usage: $139,250

Example 1

New Futures Order

Current GC2 Dynamic Clip Size calculation

Available long Exposure: $860,750 (Futures Exposure Limit - Total Usage)

Dynamic Margin Rate: $6,963 (Total Usage / Total Quantity)

Dynamic Clip Size: 124 (Available Exposure / Dynamic Margin Rate)

Result: Order for ZFM4 Rejected. Order quantity 500 exceeds Dynamic Clip size 124

Enhanced GC2 Clip Size calculation

Available Exposure: $860,750 (Futures Exposure Limit - Total Usage)

Clip Size: 615 (Available Exposure / Actual Product Margin Rate ($860,750/$1,400))

Result: Buy 500 of ZFM4 accepted.

Example 2

New Calendar Spread Order

Current GC2 Dynamic Clip Size calculation

Available long Exposure: $860,750 (Available Short Exposure $1,000,000)

Dynamic Margin Rate: $6,963 (Total Usage / Total Quantity)

Dynamic Buy Clip Size: 124 (Available Exposure / Dynamic Margin Rate)

Dynamic Sell Clip Size: 143 (Available Short Exposure / Dynamic Margin Rate)

Result: Order Buy 2000 of ZNM4-ZNU4 Rejected.

Enhanced GC2 Clip Size calculation

Note: Required long and short exposure needed for buy 1 ZNM4-ZNU4 (Spread Discount value)= $425

Available long Exposure: $860,750 (Available Short Exposure $1,000,000)

Long Clip Size: 2025 (Available Exposure / Spread Discount value ($860,750/$425))

Short Clip Size: 2352 (Available Short Exposure / Spread Discount value ($1,000,000/$425))

Result: Buy 2000 of ZNM4-ZNU4 accepted.

Options Risk Values

Options Minimum Risk Value