Portfolio Margining for OTC Interest Rate Swaps

Portfolio Margining of Interest Rate Swaps and Interest Rate Futures and Options allows the Clearing House and Clearing Members to recognize reduced risks associated with offsetting open positions, along with the following potential benefits:

Reduce margin requirements for portfolios containing both products
Reduced regulatory capital costs for FCMs
Reduced Guaranty Fund requirements for FCMs

Customer Portfolio Margining leverages a 5-day, multi-currency Value at Rick (VaR) framework, applying this methodology to Secured Overnight Financing Rate (SOFR) and Treasury futures and options prices.

This topic provides the context and functional specification for OTC IRS Customer Portfolio Margining.

Related Content
CME CORE User Help Margin Service API Portfolio Margin Capital Efficiencies Portfolio Margin Benefits Cleared OTC Interest Rate Swaps Listed Interest Rate Products

Contents

Firm Readiness Checklist

Follow the steps below to utilize Portfolio Margining for OTC Interest Rate Swaps.

#	Checklist Item	Guidance
1	Request Optimizer Email CME Group CORE Team at: posttradeservices@cmegroup.com	CME will enable download of CME Optimizer from CORE within 24 hours of request
2	Execute Legal Once optimizer request is received by CME, CME will provide a user ID to install the Optimizer. Users will agree to a “click through” Optimizer EULA to proceed with software installation.	CME will enable download of CME Optimizer within 24 hours of request
3	Download Optimizer Once user executes Optimizer EULA, an install wizard will guide users through Optimizer configuration. Read “READ ME”. Configure Optimizer for testing.	Set up of Optimizer and initial testing will take 1-2 hours
4	Request Account Setup, if necessary Contact CME Onboarding team at Onboarding_Clearing@cmegroup.com to process onboarding of new Portfolio Margin trading member firm (TMF). Once complete, users will require updated access to below systems via the EASE registration team. FEC/FEC+ (for executing transfers) EREP Reporting (Operations, Risk, Financial, Deliveries) New trading accounts should be created in Account Management Service and link to an OTC IRS account	Trading Account set up may take up to 24 hours to complete.
5	Access CME-Produced Optimizer Inputs from secure FTP site See full list of necessary files below	Clearing Member process
6	Develop process to create Firm Produced Optimizer input files	Clearing Member process
7	Develop process to read Optimizer Outputs Review human readable transfer file. Understand contents of log file. Process transfer messages with CME.	Clearing Member process
8	Test in NR Transfers are submitted to new Portfolio Margining Account (prior to 8pm EST cutoff): Transfers entered: - into FEC - sent via MQ messages Transfers verified in Positions FIXML transfer messages verified Transfers submitted to new Portfolio Margining Account following 8pm EST cutoff will be effective for next trade date. - Transfers verified in FEC. - Transfers verified in Positions (present in default futures account under the new TMF). - FIXML transfer messages received from clearing update bookkeeping system.	Clearing Member process
9	Confirm successful Customer Portfolio Margining Execution Confirm injection of xml into FEC using MQ.	Clearing Member process
10	Reconciliation of EOD Reporting Verify FIXML Trade Register contains transferred positions held in new TMF. Verify IRSXV reporting contains variation for positions held in the portfolio margining account. Verify positions on POS591MP EREP report.	Clearing Member process
11	Tie out of CME Reporting Sum of Net Cash flow by origin/breakout currency on CME IRSXV to EREP CST620 reporting relevant asset account. Sum of Settlement Initial Margin by origin/breakout currency on the CME IRSMR3 to EREP CST610 reporting for relevant asset account.	Clearing Member process

Contact

Onboarding Team

312-338-7112

Onboarding_Clearing@cmegroup.com

CORE Team

312-580-5353

posttradeservices@cmegroup.com

Supported Products

The following products are supported for Customer Portfolio Margining:

All OTC IRS Swaps
IR Futures and Options as follows:

All eligible and ineligible Interest Rate Futures and Options products indicated below should be included in the Position Input to the Optimizer; however, only the eligible futures and options contracts will be included in the Optimizer offset solution.
All ineligible products (even those not in the below list) included in the Optimization process will still allow a successful Optimization run; however, they will only produce margin data and will not be included as part of the Optimization results.

Name	Product Type	Exchange	Eligible CME Globex Contract Codes	Clearing House Codes (used in Positions.csv input file)
One-Month SOFR-based Futures	SOFR-based Futures	CME	SR1	SR1
Three-Month SOFR-based Futures	SOFR-based Futures	CME	SR3	SR3
SOFR options (quarterly, serial)	SOFR-based Options	CME	SR3	SR3
SOFR options (mid-curve)	SOFR-based Options	CME	S0 - S5	S0 - S5
U.S. Treasury Bond Futures	U.S. Treasury Futures	CBOT	ZB	17
U.S. Treasury Bond Options	U.S. Treasury Options	CBOT	OZB	17
10-Year U.S. Treasury Note Futures	U.S. Treasury Futures	CBOT	ZN	21
10-Year U.S. Treasury Note Options	U.S. Treasury Options	CBOT	OZN	21
5-Year U.S. Treasury Note Futures	U.S. Treasury Futures	CBOT	ZF	25
5-Year U.S. Treasury Note Options	U.S. Treasury Options	CBOT	OZF	25
2-Year U.S. Treasury Note Futures	U.S. Treasury Futures	CBOT	ZT	26
2-Year U.S. Treasury Note Options	U.S. Treasury Options	CBOT	OZT	26
30-Day Federal Funds Futures	U.S. Treasury Futures	CBOT	ZQ	41
Ultra U.S. Treasury Bond Futures	U.S. Treasury Futures	CBOT	UB	UBE
Ultra U.S. Treasury Bond Options	U.S. Treasury Options	CBOT	OUB	UBE
Ultra 10-Year U.S. Treasury Note Futures	U.S. Treasury Futures	CBOT	TN	TN
Ultra 10-Year U.S. Treasury Note Options	U.S. Treasury Options	CBOT	OTN	TN
1-Year Eris SOFR-based-based Swap Futures	U.S. Swap Futures	CBOT	YIA	YIA
7-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIB	YIB
3-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIC	YIC
2-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIT	YIT
5-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIW	YIW
10-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIY	YIY
15-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIL	YIL
4-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YID	YID
12-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YII	YII
20-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIO	YIO
30-Year Eris SOFR-based Swap Futures	U.S. Swap Futures	CBOT	YIE	YIE

See Optimizer release notes here.

In addition to the above eligible contracts, it is recommended to include the following ineligible contracts in Positions input file to ensure appropriate margins are calculated in the Futures and Options account.

Product Asset Class	Product Type*	Clearing House Codes
CBOT Interest Rate	FUT, OOF	3YR
	OOF	41
	OOF	TW1, TW2, TW3, TW4, TW5 WT1, WT2, WT3, WT4, WT5
	OOF	FV1, FV2, FV3, FV4, FV5 WF1, WF2, WF3, WF4, WF5
	OOF	TY1, TY2, TY3, TY4, TY5 WY1, WY2, WY3,WY4, WY5
	OOF	US1, US2, US3, US4, US5 WB1, WB2, WB3, WB4, WB5
	OOF	UL1, UL2, UL3, UL4, UL5 WU1, WU2, WU3, WU4, WU5
	OOF	TN1, TN2, TN3, TN4, TN5 WX1, WX2, WX3, WX4, WX5
	OOF	FF1, FF6
	FUT	S1U
	FUT	E1U
	FUT	T1E
	FUT	F1E
	FUT	N1E
	FUT	LIL, LIO, LIY, LIE, LIC, LII, LID, LIW, LIB, LIT
CME Interest Rates	FUT, OOF	EM
	OOF	SPO
	FUT	EB
	FUT, OOF	BU2, BU3, BU5
	OOF	1K, 2K, 3K, 4K, 5K
	OOF	EE1, EE2, EE3, EE4, EE5
	OOF	EF1, EF2, EF3, EF4, EF5

*Where FUT = future and OOF = Option on a Future.

Account Setup

The Portfolio Margining account must be set up in the below manner:

Firms currently utilizing the HOUSE Portfolio Margining Program – the HOUSE TMF will be leveraged for the Customer Accounts which will be created.
Firms which do not currently have a HOUSE TMF, CME will add this value. Please email onboarding@cmegroup.com with this request.
Firms shall set up a new Portfolio Margining Position Account.
- Onboarding new clients for creating new IRS trading and portfolio margin accounts should follow the steps here.
- For client or house accounts already trading OTC IRS, FCM back office managers can simply create a new portfolio margin account in Account Management Service and link to an IRS margin account.

The interest rate futures and options positions for Customer Portfolio Margining must be held in a separate and newly created Position Account for this purpose. The existing OTC IRS Performance Bond (PB) account will be leveraged for Portfolio Margining purposes as shown below.

All of the accounts must only contain interest rate futures and options for portfolio margining (along with OTC IRS).

Position Management

This topic pertains to IR Futures and Options and not OTC IRS.

Should Clearing Members choose not to utilize the CME Optimizer, and independently establish the optimal allocation of positions for margining, firms may move trades between the existing futures account and a portfolio margining account.

Please note the following: