Globex Credit Controls - Credit Enforcement
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The CME Globex Credit Controls (GC2) function provides pre-execution risk controls that enable Clearing Firm or Partner Exchange Clearing Firm risk administrators to set exposure limits for CME Globex order and trade activity cleared by CME Clearing.
Credit Feature Summary
Allowable Order Size: Most Restrictive
Available Exposure/Specific Listed Contract Margin Rate or Option risk value
Max Quantity Limit
Futures Margin Rates are updated daily at the close of business for the current trading day.
Strategies (Futures and Options)
Order acceptance is based on the spread discount value.
Option Risk Values
Option Delta * Underlying Futures Maintenance Margin
Option Deltas are updated daily at the close of business for the current trading day.
Minimum Risk Value: $20
Quotes/Mass Quotes are not included in open position calculations. Fills resulting from quotes are included in the filled and total position.
Top day risk tool and positions/usage are reset daily at 1600 CT
Credit Enforcement Overview
Orders are accepted if the exposure usage for the incoming order is less than or equal to the available long or short exposure.
Exposure
Available Long Exposure = Exposure Limit - Long Usage
Available Short Exposure = Exposure Limit - Short Usage
Usage
Long usage = open long + filled long - filled short
Short usage = open short + filled short - filled long
Netting of the fills only occurs if trades are in the same product complex.
If the net value of the filled position is negative then the usage equals open orders
Future Outrights
For incoming Futures orders, exposure usage is calculated using the quantity of the order multiplied by the maintenance margin of the specific instrument.
Example:
Buy 500 ZFZ4 (5 YR Treasury Future), Maintenance Margin (MM) = $1,300
Available Exposure needed for order entry = 500 * $1,300 = $650,000
Options Outrights
For each incoming new Options order, the exposure usage is calculated by the quantity of the order multiplied by the option delta (Derived at the market close on the previous day) multiplied by the maintenance margin of the underlying future.
Example:
Buy 500 OZFZ4 C1125 (Option on the 5 YR Treasury Future), Delta = 0.242, Underlying Future MM = $1,300
Available Exposure needed = 500 * 0.242 * $1,300 = $157,300
For deep out of the money options, where the delta multiplied by the MM of the underlying future is less than $20, Available Exposure needed = order quantity * $20
Future Spreads and Option Strategies
Spread Adjustment Factor
The Spread Adjustment Factor (10%) is applied to all working spread or strategy orders within the same exchange group.
Conditions for Spread Adjustment Factor Application
All of the following conditions must be valid before the Spread Adjustment Factor is applied:
The spread legs are in the same Product Complex.
Current Product Complexes include: Agriculture, Energy, Environmental, Equity Index, FX, Interest Rates , Metals, and Weather.The spread legs are all within the same Product Type, which is either "all futures" or "all options".
For futures spreads, the spread contains at least one buy and one sell leg.
For options spreads, the spread contains at least one buy and one sell leg and/or one call and one put.
All the spread legs are within the same exchange group; the product / Legal Clearing Entity relationship, as defined by the Risk Administrator.
In conditions where a spread has some legs which qualify for the Spread Adjustment Factor and some leg(s) do not:
For the legs that qualify, the Spread Adjustment Factor and the resulting working margin is applied to the associated group, Executing Firm ID / Exchange.
For the leg(s) that do not qualify, GC2 applies the full margin rates to the associated group, Executing Firm ID / Exchange.
Spread Adjustment Factor Application and Exception Examples | ||
|---|---|---|
Intra-Commodity Future Spread | For a Secured Overnight Financing Rate (SOFR) bundle, the Spread Adjustment Factor does not apply because all the future legs are on the same side. | |
Intra-Commodity Covered (single option leg and single future leg) | For 10-yr Note option calls covered by the 10-yr Note future, the Spread Adjustment Factor does not apply because the spread crosses over futures and options Product Types. | |
Inter-Exchange Future Spread across exchange groups | For Gulf Mercantile Exchange (GME) / NYMEX energy future calendar spread, if the Risk Admin defines the GME and NYMEX across two exchange groups, the Spread Adjustment Factor does not apply. If the Risk Admin has grouped GME/NYMEX in the same exchange group, then the Spread Adjustment Factor applies. | |
Working Order Spread Calculation
When a spread meets the criteria specified above, the following calculations are applied:
Calculate Value A = Spread’s total margin | Value A is the sum of:
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Calculate Value B = Spread's total margin in absolute value (abs) terms | Value B is the sum of:
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Calculate Value C = Value B multiplied by the Spread Adjustment Factor (10%) | |
Determine the spread’s working long value |
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Determine the spread’s working short value |
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Working Summary
Working Long | Working Short | |
|---|---|---|
If Value A is positive | Value A + Value C | Value C |
If Value A is negative | Value C | Absolute Value of A + Value C |
If Value A is zero | Value C | Value C |
Spread Calculation Examples
Use the following examples, of intra-commodity, calendar, user defined spreads, as a guide for GC2 exposure / max quantity limit risk settings.
The below values are in USD.
Example 1 - Intra-Commodity Spread with equal margin rates
(Buy) 1 UBU4 - (Sell) UBZ4 spread (Ultra U.S. Treasury Bond Sep 2024 - Dec 2024) with equal margin rates
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Value A = qty * MM leg 1 - qty * MM Leg 2 | 1 (qty) * 5500 MM - 1 (qty) * 5500 MM = $0 | ||
Value B = absolute value (qty * MM leg 1) + absolute value (qty * MM leg 2) | 1 (qty) * 5500 MM + 1 (qty) * 5500 MM = $11000 | ||
Value C = Value B * 0.10 (spread adjustment factor) | $11000 (value B, above) * 0.10 (spread adjustment factor) = $1100 | ||
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Example 2 - Intra-Commodity Spread with different margin rates
Buy 1 CLN5-CLZ5 (Crude Oil Future Jul 2025 - Dec 2025) with different margin rates
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Value A = [ qty * leg 1 - qty * leg 2] | 1 (qty) * 4000 MM - 1 (qty) * 3600 MM= $400 | |
Value B = absolute value [qty * leg 1) + absolute value (qty * leg 2] | 1 (qty) * 4000 MM + 1 (qty) * 3600 MM = $7600 | |
Add sum of the Maintenance Margin of the legs and multiply by 10% - spread adjustment factor, then apply to the applicable working long and short Value C = Value B * 0.10 | $7600 (value B, above) * 0.10 (spread adjustment factor) = $760 | |
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Example 3 - Option Strategy Spread
User defined spread - 10-Year U.S. Treasury Note spread - Sep 2024 109.50 / 112.00 call option spread
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Value A = [ qty * leg 1 risk value - qty * leg 2 risk value] | 1 qty * $1510 risk value - 1 qty * $558 risk value = $952 | |
Value B = absolute value [qty * leg 1 risk value + absolute value qty * leg 2 risk value] | $1510 + $558 = $2068 | |
Multiply sum of risk values by spread adjustment factor Value C = Value B * 0.10 | 2068 * 0.10 (spread adjustment factor) = $207 | |
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Order Reject Text
The following messages denote iLink Order rejection, due to GC2 violations.
Contract Type | Reject text |
|---|---|
Futures and related contracts | "GC2 Futures Exposure Violation: <Text with details of the violation>" |
Options and related contracts | "GC2 Options Exposure Violation: <Text with details of the violation>" |
Terminology
Term | Provided By Risk Administrator | Description |
|---|---|---|
Buy Futures | Y | The Buy Futures area on the GC2 window enables the GC2 Risk Administrator to set Max Quantity Limit for a futures buy order. |
Buy Options | Y | The Buy Options area on the GC2 window enables the GC2 Risk Administrator to set Max Quantity Limit for an options buy order. |
CME Globex API ID | N | Also called Executing Firm ID |
Clearing Firm | N | The CME Group or partner exchange Clearing member firm. |
Clearing Firm Administrator | N | Individual at the Clearing firm with entitlements to enter and change GC2 risk parameters. |
Control Group | N | Within a Legal Clearing Entity (LCE), the logical grouping of Executing Firm ID / Exchange |
Covered Spread | N | Buying and selling option(s) and future(s) to achieve delta neutrality (i.e. insulate the option leg(s) from price risk). Example: Buying 10 50-delta eMini S&P Dec call options and selling 5 eMini S&P Dec futures. |
Credit Control Alerts | Y | GC2 displays exposure limit and (product) maximum quantity limit |
Current Positions - Futures | N | The area on the GC2 window which details the long and short futures positions. The position is based on the Specific Listed Contract Margin Rate and defined in U.S. dollars. |
Current Positions - Options | N | The area on the GC2 window which details the long and short options positions. The position is based on the margin rate defined in U.S. dollars. |
N | An organization, incorporated or unincorporated, that constitutes, maintains, or provides a marketplace or facilities for bringing together purchasers and sellers of securities or futures. Example: CBOT, CME, NYMEX, COMEX and GME. | |
Exchange Defined Spread (EDS) | N | Spreads with legs defined by the Exchange. EDS is the only way by which future spreads are defined. There is no EDS for options. |
N | A logical entity allowed to trade products in accordance with its clearing relationships. The Executing Firm ID is three digits long and is alphanumeric or just numeric. Sometimes this coincides with the Clearing Firm ID. Executing Firm ID is synonymous with: Executing Firm, CME Globex API / CME Globex API ID, Trading Member Firm (TMF) / Trading Firm, and Badge Firm. | |
Exposure Limit | Y | The GC2 Risk Administrator must set the exposure limits per Executing Firm ID / Exchange for:
If a position reaches the exposure limit at 100%, CME Globex rejects all new orders on the exceeding side. A cancel message is accepted. |
Inter-Exchange Spread | N | Buying and selling the same future but on different Exchanges Example: Nymex Crude vs GME Oman Crude |
Inter-Market Spread | N | All legs are in a similar underlying asset. Buying one future in a given delivery month and selling a different future in the same delivery month. Example: Crack Spread = Crude Oil vs. Unleaded Gasoline and Heating Oil Example: Crush spread = Soybeans vs Soybean Oil and Soybean Meal |
Intra-Commodity Spread | N | Buying and selling the same future but for different months Example: Buy July Wheat and sell Dec Wheat. |
N | GC2 Entity is defined as the Clearing firm which legally guarantees trades executed for a single Executing Firm on CME Globex. The clearing firm may clear products from a single or multiple exchanges. GC2 Entity is defined as the combination of Legal Clearing Entity + Executing Firm ID + Exchange | |
Max Quantity Limits | Y | In addition to entering the Exposure Limits, the risk administrator can enter the optional Max Quantity Limit for Buy/Sell Futures and/or Buy/Sell Options for the grouping. |
Notifications | Y | The Clearing Firm or partner exchange risk administrator can specify the percentage of utilized limit at which to receive a credit control alert. |
Product Complex | N | Describes a group of products belonging to a given economic sector or market segment which include: Agriculture, Credit, Economic Events, Energy, Equity Index, FX, Interest Rates or Metals. See also: Exchange Traded Instruments on CME Globex - Product Complex |
Risk Administrator | N | Defines the daily exposure limits per Executing Firm ID/ Exchange group using GC2. |
Sell Futures | Y | The Sell Futures area on the CME Globex Credit Controls window where the GC2 Risk Administrator sets Max Quantity Limit for a futures "sell" order. |
Sell Options | Y | The Sell Options area on the GC2 window where the GC2 Risk Administrator sets Max Quantity limit for an options "sell" order. |
Spread Adjustment Factor | N | A positive single percentage value that is universally applied for all qualifying spreads. |
User Defined Spread (UDS) | N | Spreads with legs are defined by the client. UDS are the only way by which option spreads and Covereds can be created. |
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