This topic describes expected use cases for the CME Treasury Rules-based Offset Engine, RBOE, which is used to build offsetting positions in Fixed Income Clearing Corporation (FICC)/CME Cross-margin Allocation Process. Eligible products for risk offset between CME and FICC will need to be moved into designated position accounts within CME Clearing. This content covers both a manual approach and an automated approach for position transfers via the CME Optimizer software. This content is considered a draft for discussion purposes. This content is supplemental to normal Optimizer release notes.

Please see Optimizer release notes for additional details on release scope.

Background

CME Group and FICC are working together to enhance the capital efficiencies available to our common members (and their affiliates, where applicable) when trading U.S. Treasury Securities and CME interest rate futures that have offsetting risk exposures. For the avoidance of doubt, this content refers to the FICC Cross-margin arrangement within the Background section but subsequently refers to all CME operational workflows as the Treasury Rules-based Offset Engine or RBOE. This can be used interchangeably with RBOE.

Proposed Methodology

Key Enhancements Planned

Introduce active management aspect applicable to CME positions; passive management remains for FICC positions.
Expand the eligibility of interest rate futures products available for cross-margining

Timeline to Delivery:

Target Production Date: Pending Regulatory Approval

Eligibility:

Eligibility for the arrangement remains house (proprietary) accounts of CME Clearing Members & FICC GSD Netting Members, however, subject to regulatory analyses and approvals, CME & FICC are supportive of extending this program beyond house accounts as part of a later phase

Glossary of Terms

Treasury rules-based offset engine (RBOE): term used to define the operational offset process at a high level. Can be used synonymously with CME / FICC offset process.
Target allocation: the allocation of CME futures selected to offset FICC cash treasuries as defined in Equivalent Position Report. Conversion of treasury cash to CME futures applied via DV01. Represented in FutAllocQty field in the equivalent position report.
FICC position account: This account is new for the CME/FICC Cross Margin Program and is the account which contains CME eligible interest rate futures positions that will available to offset the FICC treasury cash positions. Clearing firms can move positions into this account by performing transfers in FEC+ (manual or API) or by running the RBOE within the Optimizer software. Firms may also give up or directly execute into this account. All positions margined in this account are subject to 3-day MPOR margin treatment.
Portfolio Margin (PM) position account: existing trading account containing offsets to cleared IRS positions. Clearing firm, via manual process or Optimizer software, transfers or directly executes into this account to achieve offsets using 5-day MPOR. Not all participants of RBOE offsets participate in this account structure.
Futures and Options position account: existing trading account capturing all futures and options positions not allocated to a special function trading account per above. Margined via 1-day or 2-day MPOR in SPAN® margin methodology.

Changes to Account Structure

To support the enhanced methodology, a new margin, position account, and trading member firm will be established at CME Group and in the Clearing member firm back office. This is the account in which CME treasury offsetting positions are established and the level at which the margin offsets will be assessed. Clearing firms can choose to:

Directly execute CME treasury trades into this account.
Book give-ups/transfers eligible futures from the original futures and options position account to this account to achieve offsets.
Utilize Optimizer software to transfer positions between the futures and options position account and this account.

A diagram of the updated account structure is below. In this example, the clearing firm also participates in the portfolio margin program for Interest Rate Swaps versus futures and options at CME. For users not participating in that program, disregard the Portfolio Margin structure on the right.

It is expected Clearing Firms may want to implement additional account structures within their back office to assist with position keeping such as using a bridge or offset account which acts as a holder of transfer offset positions between the normal futures and options position account and the new FICC position account. This setup is common to clearing firms but is not part of the CME Group account set up. Firms interested in this setup should review additional documentation and speak with back office service providers.

Expected Input Files

See expected input files described in this section.

Equivalent Position Report

The RBOE process introduces a new "Equivalent Position Report" generated by CME and published daily to clearing firm existing secure FTP and Enterprise Reporting (EREP) mechanisms. This report expresses the notional value of treasury cash positions (shown as synthetic futures positions with the product code prefix "XM") in a given FICC position account during a given cycle, as well as a DV01 equivalent quantity of CME treasury futures positions.
File details:

Producer of file: CME
File location:
- Secure FTP local: /FXXXFTP/cme/ftp/XXX/Outgoing where (XXX is the firm ID)
- EREP user interface (please contact support team for entitlement details)
File availability: daily in conjunction with multiple cycles including ITD, EOD, FINAL
Production filename convention: "XMFICCPOSN_\[cycle code\].yyyymmdd.\[firm id\].csv
- For example. the EOD file for August 22, 2022 for test firm 123 would be XMFICCPOSN_EOD.20220822.123.csv
Test filename convention: same as production with "NR_" prefix
File Format: Comma-delimited Value (CSV)

Detailed file specification:

Field	Index	Type	Description	Links to Other Optimizer Inputs

Field	Index	Type	Description	Links to Other Optimizer Inputs
BusDate	0	Date	YYYY-MM-DD
Cycle	1	String	ITD, EOD, EODXM, CUR
Run	2	Integer	Non-negative number
RunTime	3	String	Timestamp
CO	4	String	Clearing organization
CMF	5	String	Clearing member firm ID
PBA	6	String	FICC Performance bond (margin) account ID.	Maps to FICCPBAccountID in FICCPositions.csv.
Seg	7	Enum	Segregation type e.g. HOUS/CUST	Maps to Origin in FICCPositions.csv and Positons.csv
FICC_ID	8	String	DTCC participant ID
PA	9	String	FICC Position account ID	Maps to FICCAccountID in FICCPositions.csv.
CME_TMF	10	String	Trade management firm ID for CME products. Used to generate transfers.
CBT_TMF	11	String	Trade management firm for CBOT products. Used to generate transfers.
Exch	12	String	Exchange ID of the synthetic contract for margining e.g. CBT
PFCode	13	String	Product code of the synthetic e.g. XM21
PFType	14	Enum	Product type of the synthetic i.e. FUT
Period	15	PeriodCode	Period code of the synthetic e.g. 202209 Only one anchor tenor is possible per instrument.
LongPosn	16	Double	Total notional long position for this bucket (2dp)
ShortPosn	17	Double	Total notional short position for this bucket (2dp)
LongEquivPosn	18	Integer	Total converted-equivalent of long positions (rounded)
ShortEquivPosn	19	Integer	Total converted-equivalent of short positions (rounded)
NetEquivPosn	20	Integer, can be negative	Net converted equivalent position for margining
FutAllocQty	21	Integer, can be negative	Treasury futures allocation net quantity. This is the optimal amount of treasury futures in this maturity bucket. CME uses the cheapest-to-deliver DV01 to convert from the NetEquivPosn field.	Used as target allocation in FICC Position Account by Optimizer during RBOE function.

FICC Positions Report

Users of Optimizer also must generate a new positions input file expressing positions only residing in the FICC position account or account mapping details, should no positions exist. This file is very similar to the existing positions.csv file format Optimizer uses but has been customized for FICC position representation. Users will also need to use the positions.csv file to represent futures positions that are not in FICC position account.
Filename convention:
Producer of file: Clearing Firm
- If using manual process described below in 4.1, disregard this file.
File location: clearing firm back office
Filename convention: FICCPositions.csv is the default filename pattern, though users can amend the filename manually in the Optimizer's configuration.json file (found in the Optimizer's Plugins directory).
File Format:
Comma-delimited Value (CSV)
Special use: when no positions are present in a FICC position account (for instance on the first day of using the program), users must specify a line item for each FICC position account defining indexes 0 – 6 and 18 below. All others are blank (null, not 0). This line item is used by Optimizer as an account definition.
Examples of the new FICCPositions file is available in the Optimizer's \[local dir\]\Samples.

Detailed file specification:

Field	Index	Type	Description	Links to Other Optimizer Inputs	Present when no positions in FICC account?

Field	Index	Type	Description	Links to Other Optimizer Inputs	Present when no positions in FICC account?
FICCPbAccountID	0	String	Links to PBA in FICC Equivalent Position Firm Report. This is the FICC performance bond (margin) account.	Maps to PBA in XMFICCPOSN . . .csv.	Y
SegTMFID	1	String		Maps to SegTMFID in Positions.csv.	Y
FICCTMFID	2	String		Maps to CME_TMF or CBT_TMF in XMFICCPOSN . . .csv.	Y
SEGAccountID	3	String		Maps to SEGAccountId in Positions.csv.	Y
FICCAccountID	4	String		Maps to PA in XMFICCPOSN . . .csv.	Y
Origin	5	Enum	Account origin. Applicable Values: C, H	Maps to Seg in XMFICCPOSN. . .csv and Origin in Positions.csv	Y
AccountType	6	Enum	Account type. Should only contain FICC position account in this file. Applicable Values: FICC		Y
ProductCode	7	String	Represents a typical product code i.e. 17, 21 etc. in the FICC position account. Can also include synthetic contacts (i.e. "XM17") which Optimizer ignores. Blank if no position existing within account.		N
ProductType	8	Enum	Product Type. Only FUT supported day 1. Blank if no position existing within account.		N
OptionExpiration	9	PeriodCode	Left blank, for future expansion. Blank if no position existing within account.		N
FutureExpiration	10	PeriodCode	Follows existing period code formats. Blank if no position existing within account.		N
CallPut	11	Enum	Left blank, for future expansion.		N
Strike	12	Double	Left blank, for future expansion.		N
TotalLong	13	Integer	Non-negative integer value. Blank if no position existing within account.		N
TotalShort	14	Integer	Non-negative integer value. Blank if no position existing within account.		N
TradeDate	15	Date	Trade date in either YYYYMMDD or MM/DD/YYYY or M/D/YYYY format. Blank if no position existing within account.		N
ExchangeCode	16	String	Exchange code e.g. CME, CBT Blank if no position existing within account.		N
NettingEligible	17	Boolean	Indicates if portfolio is eligible for netting. Applicable Values: N or Y (false or true respectively) Should match value in Positions.csv, only one value expected per account.	Maps to NettingEligible in Positions.csv	N
PBAccountId	18	String	Conditional: used to relate a given FICC position with an IRS position (position.csv). Blank if not using IRS PM.	Maps to PBAccountId in Positions.csv	Y

RBOE Allocation Offset Workflow

Clearing firms can, as always, directly execute trading activity in the new FICC position account. This action assumes the Clearing Firm's trading strategy evaluates potential offsets to be realized against cash treasury positions in the FICC position account prior to execution. Note all positions in the FICC position account during ITD and EOD margin settlement cycles will be margined using the SPAN Methodology calibrated to 3-day Margin Period of Risk to meet regulatory requirements. Clearing Firms should only move risk offsetting positions into the FICC positions account.

Users of the rules-based offset engine have two alternative integration methods to achieve treasury offsets:

Clearing Firm Manual Process

One option for Clearing Firms to realize treasury offsets is to consume a new file produced by CME, the XMFICCPOSN file described above, then use their a standard BAU process to give-up/transfer positions from the normal futures and options trading account to the FICC position account. BAU give-up/transfer processes include direct transfer entry in the Front End Clearing (FEC+) user interface or programmatically via existing message queues. Positions in the FICC position account during ITD and EOD margin settlement cycles will be used to offset treasury cash positions defined in a new position file shared between CME and DTCC at regular intervals throughout the business day.

The target allocation of positions which should be allocated in the FICC position account is available in the FutAllocQty field by instrument and FICC margin account in the XMFICCPOSN file.
Clearing Firms must use the available allocation from their books and records to satisfy, if possible, the target allocation. Note all standard firm regulatory reporting is required, no new open interest is to be created as a result of the new offsetting process.

Note positions transferred to the FICC position account during prior day cycles will be retained in the FICC position account day over day, so a re-evaluation and re-establishment of the target allocation from the XMFICCPOSN file is necessary daily. In some cases the target allocation may be lower on T compared to T-1 and a transfer from the FICC position account back to the normal futures and options account would be expected.

Here is an operational workflow:

Workflow in depth:

Position data shared between FICC and CME (multiple times daily).
CME generates reports, including the Equivalent Position Report (XMFICCPOSN)
The Equivalent Position Report (XMFICCPOSN) is shared to firm secure FTP directories and picked up by Clearing Firms.
Clearing Firm runs internal process comparing target allocation to available allocation and identifies the offset to be achieved.
Transfers booked via standard BAU process.

Position Transfer Automation via Optimizer Process

A second solution for Clearing Firms to realize treasury offsets is to utilize the CME Optimizer software, which is being enhanced to support a rules-based offset allocation in Q4 2022. The Optimizer solution allows firms to automate the process of deriving and generating offsetting transfers to the new FICC position account in the firm back office.
The operational process is very similar to the manual solution above, aside from step 3-4, where a Clearing Firm utilizes the Optimizer to build transfers versus generating transfers via their own internal process. Interested users should read the Optimizer RBOE user Guide below.

Here is an operational workflow:

Workflow in depth:

Position data shared between FICC and CME (multiple times daily).
CME generates reports, including the Equivalent Position Report (XMFICCPOSN)
The Equivalent Position Report (XMFICCPOSN) is shared to firm secure FTP directories and picked up by Clearing Firms. Firm generates new input FICCPositions.csv.
Clearing Firm runs Optimizer software, which compares the target allocation to available allocation and identifies the offset to be achieved.
Transfers booked via standard BAU process.

Optimizer RBOE Use Cases

This section defines expected RBOE use cases for the Optimizer software. RBOE use cases are supported from Optimizer software version 18, expected for release September 30, 2022. This content is not expected to take precedence over the normal Optimizer User Guide.

Users new to Optimizer should also review the user guide as well as release notes during testing.

Running the Optimizer's Samples directory (found in Optimizer at \[local path\]\Samples) is also recommended as a reference.