Portfolio Margining for OTC Interest Rate Swaps
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.
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
| Clearing Member process |
6 | Develop process to create Firm Produced Optimizer input files | Clearing Member process |
7 | Develop process to read Optimizer Outputs
| Clearing Member process |
8 | Test in NR Transfers are submitted to new Portfolio Margining Account (prior to 8pm EST cutoff):
- into FEC - sent via MQ messages
- 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
| Clearing Member process |
11 | Tie out of CME Reporting
| 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:
- Trades may be moved on Trade Date or after Trade Date using processes outlined in the following sections.
- Trades must be moved in FEC before 8:00 PM EST
- CME will send messages to CMF back offices in real time, for activity related to Portfolio Margining.
- CME will process a PCS report from the Clearing Members that reflects adjusted Interest Rate Futures and Options numbers for Futures position account.
- CME will process a PCS report from the Clearing Members that reflects the new Portfolio Margining Futures position account; however, the default setting is to net positions, so no PCS is required.
- CME will produce a Variation Summary file showing VM on each account. Swaps margin calculations begin at 8 PM EST, rather than 7 PM EST. Swaps Margin Reports will move to 10:00 PM EST with a Critical SLA of 11 PM EST, from 9 PM EST.
- Swaps margin calculations begin at 8 PM EST, rather than 7 PM EST. Swaps
- Margin Reports will move to 10:00 PM EST with a Critical SLA of 11 PM EST, from 9 PM EST.
To manage positions on Trade Date, Clearing Member Firms may utilize any of the following methods described below:
1. Direct execution to the Portfolio Margining account.
2. Initiate Give-up to the new account, via FEC API or directly from the GUI.
3. Initiate Transfer to the new account, via FEC API or directly from the GUI.
After Trade Date, CME recommends utilizing the Transfer process (step 3 above), although Give-Ups may be initiated up to 4 business days after trade date.
Direct Execution to PM Account
In this scenario, user of the CMF specifies the appropriate portfolio margining account upon trade execution. The IR future or option is then routed to this account, eliminating the need to transfer this trade at a later time.
- This option requires configuration for “point of execution” in CME Globex
- All accounts that intend to execute directly into a PM account should coordinate with the CME Globex Account Management (GAM) team.
Give-Up
Give-Ups may be executed through the FEC API or directly in the application. If performed through the API, CMFs can give-up a single trade from the default futures account to the appropriate portfolio margining account. This allows CMFs to send a group of trades or a portion of a group of trades to the destination account. For portfolio margining purposes, this allows middleware to setup rules for routing trades between accounts throughout the day. All messaging to CMFs will be real-time.
Once CME Clearing has confirmed a trade, a CMF may submit replace (change) instructions to update information specific to the Clearing Member Firm, such as Account, Origin, and CTI.
Clearing Member to CME – Change Message Marking for Give-Up
The below message is sent to CME from CMFs, marking a trade for Give-Up: TransTyp=”2”, give-up indicator set (AllocInd=”2”) and give-up information contained in the Allocation block:
<FIXML> <TrdCaptRpt RptID="135BAC214D3AP0002C7C22055701496" TransTyp="2" RptTyp="0" TrdTyp="0" TrdDt="2019-06-27" BizDt="2019-06-27" MLegRptTyp="1" MtchStat="0" MsgEvtSrc="MQM" TrdRptStat="0" TrdID="100619" TrdHandlInst="0" LastQty="1" LastPx="98.475" TxnTm="2019-06-27T05:57:01-06:00"> <Hdr Snt="2019-06-27T05:57:01-06:00" SID="999" TID="CME" SSub="CME" TSub="CME"/> <Instrmt Sym="GEZ0" ID="ED" CFI="FFDCSO" SecTyp="FUT" Src="H" MMY="20201200" MatDt="2020-12-14" Mult="2500" Exch="CME" PxQteCcy="USD"/> <RptSide Side="1" ClOrdID="117467599" InptSrc="MQM" InptDev="API" CustCpcty="1" OrdTyp="M" AllocInd="2" SesID="ETH" SesSub="E" OrdID="528262" AgrsrInd="Y"> <Pty ID="CME" R="21"/> <Pty ID="CME" R="22"/> <Pty ID="999" R="1"/> <Pty ID="TESTERS" R="24"> <Sub ID="1" Typ="26"/> </Pty> <Alloc Qty="1"> <Pty ID="CME" R="22"/> <Pty ID="909" R="1"/> <Pty ID="IRS_XMGRN" R="24"/> </Alloc> <TrdRegTS TS="2019-06-27T05:57:01-06:00" Typ="1"/> </RptSide> </TrdCaptRpt> </FIXML>
CME Acknowledgment Message to Executing Firm
<FIXML> <TrdCaptRptAck RptID="135BAC214D3AP0002C7C22151040438" TransTyp="2" RptTyp="0" TrdTyp="0" MtchID="135BAC214D3AP0002C7C20" ExecID="00563420120227055701TN0000039" PxTyp="2" TrdDt="2019-06-27" BizDt="2019-06-27" MLegRptTyp="1" MtchStat="0" MsgEvtSrc="CMESys" RptRefID="135BAC214D3AP0002C7C22055701496" TrdRptStat="0" TrdID="100619" TrdID2="135BAC214D3AP0002C7C22" TrdHandlInst="0" LastQty="1" LastPx="98.475" TxnTm="2019-06-27T15:10:40-06:00"> <Hdr Snt="2019-06-27T15:10:40-06:00" SID="CME" TID="999" SSub="CME" TSub="CME"/> <Instrmt Sym="GEU8" ID="ED" CFI="FFDCSO" SecTyp="FUT" Src="H" MMY="20201200" MatDt="2020-12-14" Mult="2500" Exch="CME" PxQteCcy="USD"/> <RptSide Side="1" ClOrdID="117467599" InptSrc="GBX" InptDev="API" CustCpcty="1" OrdTyp="M" SesID="ETH" SesSub="E" AllocInd="2" OrdID="528262" AgrsrInd="Y"> <Pty ID="CME" R="21"/> <Pty ID="CME" R="22"/> <Pty ID="999" R="1"/> <Pty ID="TESTERS" R="24"> <Sub ID="1" Typ="26"/> </Pty> <Pty ID="3H1L" R="12"/> <Pty ID="CAB" R="44"/> <Pty ID="999" R="4"/> <Pty ID="V92381" R="55"/> <Pty ID="999" R="38"> <Sub ID="1" Typ="26"/> </Pty> <Pty ID="GB" R="54"/> <Alloc Qty="1"> <Pty ID="CME" R="22"/> <Pty ID="909" R="1"/> <Pty ID="IRS_XMGRN" R="24"/> </Alloc> <TrdRegTS TS="2019-06-27T05:57:01-06:00" Typ="1"/> </RptSide> </TrdCaptRptAck> </FIXML>
Allocation Instruction Alert to Executing Firm
The below message is sent from CME to the Executing Firm, indicating the trade (TrdID="100619") was marked for post-trade processing (Give-UP → PostTrdTyp = 0 / APS → PostTrd Typ = 1):
<FIXML v="5.0 SP2" xv="109" cv="CME.0001"> <AllocInstrctnAlert ID="135BC5169BDFEC0001CA4A6151040543" GrpID="109931" SesID="ETH" SesSub="E" AvgPx="98.475" TrdDt="2019-06-27" ClrDt="2019-06-27" TrdTyp="0" Stat="6" MLegRptTyp="1" TxnTm="2019-06- 27T15:10:40-06:00" InptDev="API" InptSrc="GBX" TransTyp="0" Typ="13" Qty="1" GrpQty="1" Side="1" PostTrdTyp="0"> <Hdr Snt="2019-06-27T15:10:40-06:00" SID="CME" TID="123" SSub="CME" TSub="CME"/> <OrdAlloc ClOrdID="117467599"/> <AllExc TrdID="100619" LastQty="1" LastPx="98.475"/> <Instrmt Sym="GEZ0" ID="ED" CFI="FFDCSO" SecTyp="FUT" SubTyp="O" MMY="20201200" MatDt="2020-12- 14" Mult="2500.0" Exch="CME" PxQteCcy="USD"/> <Pty ID="CME" R="22"/> <Pty ID="123" R="1"/> <Pty ID="3H1L" R="12"/> <Pty ID="TESTERS" R="24"> <Sub ID="1" Typ="26"/> </Pty> <Pty ID="CME" R="21"/> <Pty ID="API" R="200"/> </AllocInstrctnAlert> </FIXML>
Transfer
In this scenario, a Clearing Member Firm initiates a Transfer of a single trade or a position within a given contract to be transferred. Transfers will offset the original trade/position and will update the position in the destination account. Users may leverage the FEC API to develop further automated processes or the FEC GUI to execute transfers.
For all Clearing Member Firm API documentation, please reference the CME Document Directory at the following link: http://www.cmegroup.com/clearing/systems-operations/technical-standards.html.
Specifically:
- Allocate Claim FIXML API Users Guide
- FIXML Two Party Trade Submission for Match by Clearing Overview
Transfer Requirements in FEC
Please see Transfer Management Chapter of the FEC Plus user guide here for instructions. Please note:
- Account – Portfolio Margining Account number (firm defined)
- Firm – Trading Member Firm (TMF) which currently holds the position
- Opposite Firm – Default Portfolio Margining trading Firm (TMF) (assigned by CME)
- Transfer Reason Code – “M” (Portfolio Margining)
Transfer Flow in FEC
The combination of TMF and Account ID on the transfer message dictate where the position will flow:
Scenario 1: TMF is correct, and the Account ID indicated matched a customer-specific Portfolio Margining Position Account as defined at CME Clearing.
- The position will be held and margined alongside that Customer’s Interest Rate Swaps
Scenario 2: TMF is correct, but the Account ID indicated does NOT match a customer-specific Portfolio Margining Position Account as it is defined at CME Clearing.
- The position will be held and margin alongside the Customer Segregated account of the firm.
CME Optimizer
To facilitate Customer Portfolio Margining, CME Group provides the CME Optimizer as an option available for download to facilitate a straight through processing.
The Optimizer accepts as inputs various CME-produced data files as well as a firm-produced file outlining the current allocation of a portfolio’s futures and options positions to be cross-margined with Interest Rate Swaps, then recommends a more optimal allocation to improve Margin requirements. CME Optimizer is made to run in batch, processing multiple portfolio allocations through each run. CME Optimizer also gives transfer message files (in FIXML format) if an FCM would like to execute the recommended transfers at the end of each day. This translates into a substantial cost savings for clients who clear at CME Group.
The current production version of the Optimizer is 17.0. For further details about Optimizer 17.0, please see the detailed release notes page.
Example
Given two portfolios, one of Interest Rate Swaps and one of eligible Interest Rate Futures and Options, the CME Optimizer will:
- Derive the optimal allocation of existing Futures and Options positions for SPAN and OTC IRS VAR (historical and stressed Value at Risk) margin treatment.
- Deduce the net positions in each contract that should be transferred from one account to the other.
- Provide FIXML transfer messages compatible with CME Clearing systems, which the Clearing Member Firm may submit only after CME’s ITD cycle, to move the positions on the books and records of the Clearing House (which then produce confirmation messages Clearing Members can use to update their books and records).
- CME does not allow transfers to take place prior to the CME ITD settlement cycle on a business day. Transfers must take place between 12pm CT - 7pm CT.
- The Optimizer does not need to be run on USD Banking or Exchange holidays.
Optimizer Program Diagram
Optimizer Technical
Technical details related to installing the Optimizer, system requirements, and running Optimizer can be found at the dedicated Optimizer User Guide here.
Once the data is read into the Optimizer and parsed, the Optimizer will process the data and calculate what transfers (if any) can be made to improve the allocation of futures and options to take advantage of CME’s Portfolio Margining program. The Optimizer can process multiple portfolios (PB accounts and associated PM and SEG accounts) in batch. Therefore, multiple portfolios may be represented in portfolio input files.
Position Netting
Position netting feature helps users avoid maintaining concurrent long and short positions between the SEG and PM accounts. The netting process takes place after Treasury Delivery Roll Logic (if applicable) and before Optimization. Please note this process may produce up to three sets of transfers: 1) Delivery Roll Log Transfers, 2) Netting Transfers, 3) Optimizer Transfers (Deliveries Roll Log and Netting are configurable options, which must be enabled to utilize). If both of these options are enabled, Deliveries Roll Log will impact eligible positions for netting, and Netting will impact eligible remaining positions for Optimization.
The following is a detailed overview of netting logic:
1. Prior to Optimization
The first step of the netting process calculates the net position within the SEG account and PM account. This action provides the pre-netting allocation (e.g. 100 x 0 = +100 SEG, 0 x 100 = -100 PM).
2. Netting
If concurrent long and short positions across the SEG and PM accounts are found, the netting process then transfers the maximum amount of positions resulting in one of the accounts (PM or SEG) being net zero.
Continuing the example, SEG: 100 x 0 and PM: 0 x 50 results in 50 buys to the PM account and 50 sells to the SEG account.
3. Optimized Position
The third step feeds the Optimizer amended positions that represents a reduction in open interest by the quantity that was transferred.
Continuing the example, SEG was 100 x 0, 50 sells came in, thus 50 x 0 would be sent into the Optimizer for optimization in the SEG account. PM was 0 x 50 and 50 buys came in, thus 0 x 0 would be sent into the Optimizer for optimization in the PM account.
The other four Use Cases (below #2-5) show scenarios where netting is applied but the position is not closed out.
Use Case #1: Vanilla - Equal Offsetting Postion | ||||
---|---|---|---|---|
SEG | PM | |||
L | S | L | S | |
Prior to Optimization | 100 | 0 | 0 | 100 |
Netting | 100 | 100 | ||
Optimized Position | 0 | 0 | 0 | 0 |
Use Case #2 - Close out SEG Risk | ||||
SEG | PM | |||
L | S | L | S | |
Prior to Optimization | 800 | 0 | 0 | 1000 |
Netting | 800 | 800 | ||
Optimized Position | 0 | 0 | 0 | 200 |
Use Case #3 - Close out PM Risk | ||||
SEG | PM | |||
L | S | L | S | |
Prior to Optimization | 800 | 0 | 0 | 100 |
Netting | 100 | 100 | ||
Optimized Position | 700 | 0 | 0 | 0 |
Use Case #4 - Equal and Offsetting Positions (no net PM risk exposure, no position to move) | ||||
Prior to Optimization | SEG | PM | ||
Netting | L | S | L | S |
Optimized Position | 1000 | 900 | 900 | 900 |
0 | 0 | 0 | 0 | |
1000 | 900 | 900 | 900 | |
Use Case #5 - Gross Positions with Netting* | ||||
Prior to Optimization | SEG | PM | ||
Netting | L | S | L | S |
Optimized Position | 1000 | 500 | 400 | 600 |
200 | 200 | |||
800 | 500 | 400 | 400 |
*For gross position keeping, it is recommended to set NettingEligible flag in the positions file to 'N'. The NettingEligible Flag is portfolio-level.
Once the optimal allocation of futures and/or options has been found, the Optimizer will generate 6 output files: a CSV Margin summary file, a FIXML file containing associated transfer messages, an Optimizer Log file, a Total Savings Report file and a Funding Impact file.
There will be 1 CSV and 1 FIXML file created per execution of the Optimizer. For instance, if the Delta Ladder and Positions files contain 5 separate portfolios within them, there will be a single CSV and FIXML output containing optimized position allocations for 5 portfolios. The FIXML file is in a format ready to be sent to CME for clearing.
Optimizer Transfer File - csv CSV Summary file of the optimized position allocations for all portfolios included in the Optimization run. Report Name and Location is: (Optimizer output folder) csvTransfersYYYYMMDD.csv |
Optimizer Transfer File - FIXML FIXML file containing associated transfer messages for the optimized position allocations for all portfolios included in the Optimization run. Report Name and Location is: (Optimizer output folder) fixmlTransfersYYYYMMDD |
Optimizer Log File File containing the number of portfolios successfully processed, number of portfolios that resulted in successful transfers and error details. Report Name and Location is: (Optimizer output folder) OptimizerLogYYYYMMDD |
Total Savings Report Total Margin savings in USD and percentage which has been attained through the use of Portfolio Margining as compared with the margin which would have been required without the application of Portfolio Margining per PB Account. Report Name and Location is: (Optimizer output folder) Total Savings EstimateYYYYMMDD.csv |
Transfers by PB Account Subdirector The Transfers by PB Account Subdirectory splits the original csv Transfers file into client level summaries per PB account. Report Name and Location is: (Optimizer output folder) Subfolder: TransfersByPbAccount Report naming convention: (PBACCTID)_YYYYMMDD.csv |
Funding Impact Report The Funding Impact Report shows the difference between the margin requirements before and after Optimization based on the allocation of Futures and Options in the positions.csv file and proposed transfers. Report Name and Location is: (Optimizer output folder) FundingImpactYYYYMMDD.csv |
Margin Summary Report The Margin Summary Report includes Margin Calculation information calculated during optimization runs and provides base IRS risk, liquidity IRS risk, and SPAN risk throughout the optimization process. Report Name and Location is: (Optimizer output folder) MarginSummaryYYYYMMDD.csv |
Name | Description |
---|---|
PbAccount | Performance Bond Account |
VaR for OTC IRS only | IM for all OTC IRS without any futures and/or options via IRS Margin Methodology |
Span for All Futures | IM for all futures/options in the portfolio margined via SPAN |
Total IM without PM | Sum of prior two line items |
VaR Before Netting | IM for IRS and futures/options in the PM account on the positions.csv file |
Span Before Netting | IM for residual futures/options in the SEG Account on the positions.csv file |
Total IM before netting | Sum of prior two line items |
VAR Pre Optimization | IM for IRS and futures/options in the PM account after netting is run when enabled |
Span Pre Optimization | IM for residual futures/options in the SEG Account after netting is run when enabled |
Total IM Pre Optimization | Sum of prior two line items |
VaR After Optimization | IM for IRS and futures/options post Optimization |
Span After Optimization | IM for futures/options in SEG post Optimization |
Total IM After Optimization | Sum of prior two line items |
Positions Input File
The file below provides examples of the necessary format for the positions file. Positions files can be up to 25 fields, all fields additional to the below are considered optional and passed through.
Column Name | Size | Description |
---|---|---|
PB Account ID | Up to 15 Alpha-numeric | This is the CME pb account ID that is linked to the futures and options account ID of this position. This ID ties to the pb Account ID displayed in the Delta Ladder file. |
SegTMFID | Up to 5 Alpha-numeric | TMF ID for the SEG account associated with the position and applicable PB Account ID. |
PmTMFID | Up to 5 Alpha-numeric | TMF ID for the PM account associated with the position and applicable PB Account ID. |
SEGAccountID | Up to 15 Alpha-numeric | This is the SEG account ID holding Futures/Options associated with this position and applicable PB Account ID. Positions held within this account are NOT included in cross margining. |
PMAccountID | Up to 15 Alpha-numeric | This is the PM account ID holding Futures/Options associated with this position and applicable PB Account ID. Positions held within this account are included in cross margining. |
Origin | 1 Alpha ("C" or "H") | Denotes the origin of this account: C for customer account or H for house account |
AccountType | Up to 15 Alpha-numeric | This field identifies if this Futures/Options Account ID associated with this position should be included in the Portfolio Margining program. SEG - Segregated Customer Futures and Options Account (4d account) NSEG - Segregated House Futures and Options Account (4d account) PM - Futures and Options account that will is a part of the Portfolio Margining program (4df account) * Please note, a PB Account ID can only have at most 1 PM account and 1 SEG account associated with it. |
Product Code | Up to 10 (Clearing Currently 6) | Span Product Family Code |
Product Type | 3 bytes Alpha-Numeric | OOF for Option, FUT for Future |
Option Expiration Month | Up to 8 Alpha-numeric | Month of Option Expiry (YYYYMM) Month and Week of Options Expiry (YYYYMMWX) |
Future (Underlying) Expiration Month | 6 | Month of Future Expiry (YYYYMM) |
Call "C" or Put "P" | 1 Alpha ("C" or "P") | "C" for Call, "P" for Put, Blank for Futures |
Strike | Up to 14 digits, Seven Left, Seven Right | Strike - In true decimal format |
Total Long | Up to 15 digits, 2 decimals | Total Long Positions |
Total Short | Up to 15 digits, 2 decimals | Total Long Positions |
Trade Date | 8 | YYYYMMDD |
SPAN Exchange | 3 | The 3-character SPAN Exchange code. In this case, either CME or CBT. |
Netting Eligible | 1 | This field identifies if Netting should be Enabled. "Y" for Yes, "N" for No |
* It is assumed that futures and options will be held in the same Seg account. |
Message Samples
Transfer Add Message from CME Optimizer to CME
The following message will be sent from the CME Optimizer to CME when initiating a trade Transfer via API: add transfer (TrdTyp=”3”) with original trade date (OrigTrdDt) and Transfer Reason Code (OrdTyp) = “M”:
<FIXML v="5.0" s="20111206"> <TrdCaptRpt RptID="900000" TrdID="900000" TransTyp="0" RptTyp="0" TrdTyp="3" TrdHandlInst="2" OrigTrdDt="2019-06-17" LastQty="1000" LastPx="145.1875" TrdDt="2019-06-25" MLegRptTyp="1" TxnTm="2019-06-25T00:00:57.1847503Z" MsgEvtSrc="API"> <Hdr SID="973" TID="CME" SSub="CBT" TSub="CBT" Snt="2019-06-25T00:00:00"/> <Instrmt ID="17" CFI="FXXXXX" SecTyp="FUT" MMY="201912" Exch="CBT"/> <RptSide Side="2" ClOrdID="PM001" InptDev="API" CustCpcty="4" SesID="RTH" SesSub="X" OrdTyp="M"> <Pty ID="CBT" R="22"/> <Pty ID="CME" R="21"/> <Pty ID="973" R="1"/> <Pty ID="HANSON" R="24"> <Sub ID="1" Typ="26"/> </Pty> <Pty ID="1Z9" R="17"/> <Pty ID="OPTMZ5" R="48"> <Sub ID="1" Typ="26"/> <Sub ID="4" Typ="4000"/> </Pty> </RptSide> </TrdCaptRpt> </FIXML>
CME Acknowledgment of CME Optimizer Add Transfer Message
The following acknowledge message is sent from CME back to Clearing Member Firm, with TransTyp = “0”:
<FIXML> <TrdCaptRptAck RptID="135BCD40D95AP0001C1B6132021144" TransTyp="0" RptTyp="0" TrdTyp="3" TrnsfrRsn="M" MtchID="135BCD40D95AP0001C1B4" ExecID="00000000000000000045" PxTyp="2" TrdDt="2019-06-25" BizDt="2019-06-25" MLegRptTyp="1" MtchStat="1" MsgEvtSrc="CMESys" RptRefID="0012217" TrdRptStat="0" TrdID="103650" TrdID2="135BCD40D95AP0001C1B6" TrdHandlInst="2" OrigTrdDt="2019-06-17" LastQty="75" LastPx="98.82000000" TxnTm="2019-06-25T13:20:21-06:00"> <Hdr Snt="2019-06-25T13:20:21-06:00" SID="CME" TID="999" SSub="CME" TSub="CME"/> <Instrmt Sym="GEZ0" ID="ED" CFI="FFDCSO" SecTyp="FUT" Src="H" MMY="20201200" MatDt="2020-12-14" Mult="2500" Exch="CME" PxQteCcy="USD"/> <RptSide Side="1" ClOrdID="PM001" InptSrc="MQM" InptDev="API" CustCpcty="2" OrdTyp="M" SesID="RTH" SesSub="X"> <Pty ID="CME" R="21"/> <Pty ID="CME" R="22"/> <Pty ID="999" R="1"/> <Pty ID="IRS_XMGRN" R="24"> <Sub ID="1" Typ="26"/> </Pty> <Pty ID="909" R="17"/> <Pty ID="999" R="4"/> <Pty ID="IRS_XMGRN" R="38"> <Sub ID="1" Typ="26"/> </Pty> </RptSide> </TrdCaptRptAck> </FIXML>
Reporting
CME Group will publish all reports as usual. Additionally, CME Group will publish a Variation Summary Report which will list the Interest Rate Futures and Options Variation Margin and OTC IRS Variation Margin cash flows in IRS Position Account from Portfolio Margining process and CME will publish an OTC Margin Report, this Initial Margin Report will list IRS margin requirements by PB account, as well as equivalent currency requirements. This report offers the same information as the IRSMR3 report – only in a slightly different format. Initial margin is passed as a combined number (you cannot break out what portion is futures/options and what portion is swaps).
The following reports may be used for reconciliation of each position maintained by the Clearing House for the Clearing:
IRS Trade Register – CSV Describes all cleared interest rate swap and swaption trade economics and valuation details by position account. This report does NOT include futures and options positions used to offset IRS activity. Report Name and Location is SFTP (Firm Directory) IRSTR_FFF_ yyyymmdd_EOD.csv (production environment) IRSTR_FFF_yyyymmdd_EOD.nr.csv (test environment) | 8:00pm EST |
IRS MR3 Report OTC IRS Margin Requirements. The MR3 report provides the initial margin and maintenance margin requirement for each house and customer performance bond account. The MR3 differentiates the initial and maintenance margins into various traded currencies. IRSMR3 is published in two nightly versions:
Report Name and Location is SFTP (Firm Directory)
| Early: 10:00pm EST EOD: 11:00 EST |
Portfolio Margin Futures/Options Trade Register Files Two reports display portfolio margin futures and options residing in OTC cross-margin accounts:
| 12:00am EST |
Variation Summary Report EOD To reconcile the net banked amount at CME, aggregate the Trade Report cash flows with the Variation Summary Report (IRSXV) cash flows. IR futures/options VM and OTC IRS VM cash flows in IRS position account from Portfolio Margining process at End of Day. Report Name and Location is SFTP (Firm Directory) IRSXV_FFF_YYYYMMDD.csv (production environment) IRSXV_FFF_YYYYMMDD.nr.csv (test environment) | 10:00pm EST |
Variation Summary Report ITD The IRSXV ITD Report will be the exact same format as the IRSXV EOD Report, however it will be produced at Intraday. IR futures/options VM and OTC IRS VM cash flows in IRS position account from Portfolio Margining process at Intraday. Report Name and Location is SFTP (Firm Directory) IRSXV_ITD_FFF_YYYYMMDD.csv (production environment) IRSXV_ITD_FFF_YYYYMMDD.nr.csv (test environment) | TBD |
Clearing Member Published Reports
Clearing
CME will continue to receive the PCS as usual. The overall requirement of properly reporting customers’ open interest to CME via PCS does not change. PCS submitted in the futures position account should not reflect any positions held in the PM PA account. The PM PA account requires a separate PCS file if a firm should not elect to use the default netting of all positions in the PM account.
All Customer Portfolio Margin Positions Accounts which are requested to be set up for this program will be set up with a netting maximization requirement. FOR EXAMPLE:
- A customer with 100 x 0 in their Portfolio Margin Position Account transfers in 30 sells
- The Position Account automatically reduces to 70 x 0 at the end of the day
- No PCS required for the Portfolio Margin Position Accounts
The PCS for the regular Futures Position Accounts will need to be manually amended to only reflect the open interest of the remaining Futures positions that were not moved into the Portfolio Margining Position Accounts. FOR EXAMPLE:
- A customer with 100 x 0 in the regular Futures Position Account transfers 30 positions to the Portfolio Margin Position Account
- PCS for the regular Futures Position Account must reflect a Final Long of 70 so as to not overstate open interest
Clearing Member Back Office Reporting and Bookkeeping
Customer Portfolio Margining will impact bookkeeping practices for Clearing Member Firms. Although CME is aware that there are multiple manners in which to handle bookkeeping impacts, CME offers the below options as two examples of guidance in handling these implications.
The following firm bookkeeping models are guidance for firms to internally apply as they adjust trades for Client Portfolio Margining. The following firm bookkeeping models are NOT related to the CME account setup requirements and/or process.
Option 1: One new account created:
- Each transfer will have two sides (the buy and the sell)
- In this case, the buy is booked to the 4df account to move 10,000 long positions
- The sell is booked to the existing 4d account of the client
Option 2: Two new accounts created plus one related master account created:
- Each transfer will have two sides (the buy and the sell)
- In this case, the buy is booked to the 4df account to move 10,000 long positions
- The sell is booked to a new 4d account for the client
- The firm will know books are balanced if the sum of the positions in these two accounts adds up to zero
Deliveries
Treasury Futures which physically deliver carry specific reporting requirements.
When a firm effects a transfer of Treasury futures from its Base Futures Account to its IRS Portfolio Margin Futures Account (or vice versa), the firm must retain the original trade date(s) of the transferred Treasury futures, irrespective of the date of transfer, in the firm’s Long Date File.
Firm Implications
- If a firm does not plan taking their Treasury Futures position to delivery, keeping track of their Original Trade Date is irrelevant.
- If a firm does plan on or does not know whether they will be taking their Treasury Futures position through to delivery they must keep track of the Original Trade Date (though that does not necessarily mean the Original Trade Date must be on the transfer).
Additional Delivery-related Points
- CME is agnostic as to the Transfer Date on transfers that occur for portfolio margining.
- CME is agnostic as to the Price on the transfers that occur for portfolio margining (though prior day settle is encouraged as it reduces and meaningless pass of Variation Margin between the same firm).
Position Movement During Delivery Period Example
Delivery Period | Date | Action |
---|---|---|
First Notice Date | 05/27 | CME suggests clearing firms set exclusion period to begin in Optimizer configuration.json file - see more details about using this file in the Optimizer User Guide |
First Intent Date | 05/30 | Last possible day to move June contracts back to SEG account with no risk of getting assigned in your portfolio margining firm. |
Last Trade Date | 06/28 | Last day firms should be including June contracts in their position file. |
Day after Last Trade Date | 07/01 | Front month is now the September contract. CME suggests clearing firms set exclusion period to end in the Optimizer's configuration.json file. Firms must exclude June contracts from their position file. |
Option Expiration and Exercise and Assignment
American-style options can be randomly assigned, including in an OTC swaps accounts, prior to the option expiration date.
- Options in portfolio margining are settled in the existing cleared OTC account structure used for futures in portfolio margining.
- Exercising long options in portfolio margin accounts:
- Clearing firms must demonstrate the ability to appropriately manage changes to books and records occurring as a result of exercised long options for a client proprietary account participating in portfolio margining.
- If following Account structure 1 above, Clearing firms are expected to exercise long positions in the SEG futures account until the account has insufficient quantity, then continue exercising any excess quantity in the sequestered OTC swaps account.
- If following account structure 2 above, Clearing firms are expected to exercise long positions in the SEG futures account as it should always have sufficient quantity since it is based on all traded positions.
- Random assignment of short options:
- CME’s random assignment process takes into account cleared OTC accounts in addition to cleared segregated accounts - the process is randomized across all accounts containing options, regardless of account type.
- Short options in an OTC accounts during the EOD assignment process at CME can be flagged for random assignment.
- Clearing firms must process future trades booked as a result of random assignment in the OTC account.
- Clearing firms can choose to utilize Optimizer’s exclusion logics, described in the Optimizer User Guide here, to mitigate the risk of option expiration in OTC accounts.
- For more details and examples related to exercise and assignment of listed options in portfolio margining, please contact posttradeservices@cmegroup.com.
Cash Flows
Initial Margin and Variation Margin requirements are calculated and banked on a portfolio basis for portfolios containing both IRS and Interest Rate futures/options at the end of each day. A report will break out the Variation Margin cash flow between VM associated with commingled futures/options and IRS positions. Cash flows for IR futures/options not commingled with IRS positions will not change.
For listed options in portfolio margining, Available Net Option Value (ANOV) will be settled in OTC cleared accounts. Similar to the existing behavior in segregated futures accounts, Available Net Option Value settled in OTC accounts can offset market risk, capped at the total Risk Maintenance Requirement using this formula:
- If Risk Maintenance Requirement (RRM) is > or = total Net Option Value, then Total Requirement = RRM – NOV.
- If Risk Maintenance Requirement (RRM) < total Net Option Value, then Total Requirement = 0 due to NOV capping.
- Available Net Option Value (ANOV) is therefore the applied net option value
- For example, if an account’s computed risk factors are:
- RRM = $1,000,000
- NOV = $1,200,000
- Then total requirement = $0, ANOV was capped to $1,000,000
- For example, if an account’s computed risk factors are:
More general details about Net Option Value can be found here: A Primer on Margining Styles of Options
At Intraday, for commingled IR futures/options, VM gains will be kept in clearing (not paid out) and VM losses must be paid to the Clearing House.
Variation Margin Cash Flow Example | |
---|---|
Account (in which the trade was executed) | SEG Account |
Position | 50L |
Settlement Price | $1.00 change, day over day |
Day 1: Optimizer says move all 50L to PM account | |
SEG Account | PM Account |
VM of $50 hits account | No impact |
Day 2: No Activity | |
SEG Account | PM Account |
No impact | VM of $50 hits account (netted against swaps) |
Day 3: Optimizer says move all 50 back to Seg Account | |
SEG Accoount | PM Account |
No Impact | VM of $50 hits account (netted against swaps) |
Day 4: No activity | |
SEG Account | PM Account |
VM of $50 hits account | No impact |
Intraday (ITD) Process
Futures and options products in the Portfolio Margining Futures Position Account will calculate VM at Intraday.
For IR futures and options in the Portfolio Margining account at ITD, the variation margin process is as follows:
- If the Clearing Member owes money, CME shall collect the money.
- If the Clearing Member is owed money, CME shall hold on to the money.
- The EOD process will follow current pay and collect (when EOD Mark to Market process takes place).
- Please also reference the LSOC compliance document available on the CME Group website.
Variation Summary Report
Variation Summary Report for reconciliation, shows Interest Rate futures and options VM and OTC IRS VM cash flows in the IRS position account from Portfolio Margining process including all trades/positions from the Portfolio Margining account:
File Name = IRSXV_(FIRMID)_YYYYMMDD.csv
Format = CSV
Location = Firm Directory on SFTP site
Timing = 9:00 PM EST
Column | Column Header | Description | Attribute Type |
---|---|---|---|
A | BusDate | Business Date | Date |
B | CO | Clearing Organization | Alphanumeric |
C | CMF | Clearing Member Firm ID | Alphanumeric |
D | PA | Position Account ID | Alphanumeric |
E | Seg | Segregation Type (CUST or HOUS) | Alphanumeric |
F | PA_Name | Position Account Name | Alphanumeric |
G | PBA | Margin Account ID | Alphanumeric |
H | SA | Settlement Account ID | Alphanumeric |
I | Fseg | Funds Segregation Type | Alphanumeric |
J | Level | Always “B” for Breakout by Currency | Alphanumeric |
K | Ccy | Currency | Alphanumeric |
L | SV_Fut | Settlement Variation – Futures Account | Numeric |
M | SV_Swap | Settlement Variation – Swaps Account | Numeric |
N | SV_Total | Settlement Variation – Total | Numeric |
O | Value_Date | Value date of the associated funds movement | Date |
Portfolio Margin Savings Calculation - CME CORE
CME CORE is an interactive margin calculator that allows customer to input positions via portfolio upload or manual trade entry and download Margin Results. CME CORE calculates margin savings and capital efficiencies within the Customer portfolio Margining Offering. CORE has the ability to show both naked swap amounts (using 5 day HVaR), naked futures and options amounts (using SPAN) and then a combined savings.
A CME Group Login is required to access CME CORE. If you need a CME Group Login, please follow these steps or and view CME Group Login Help for more details:
- Go to the CME CORE login screen. (https://cmecore.cmegroup.com/)
- Click on the "Need to Register" link and provide the required information.
- Receive your CME Group Login.
- Email posttradeservices@cmegroup.comto request entitlements to CME CORE. You need only provide:
- Your user ID
- The asset class for which you want interactive margin calculations
Advisories
For further information please also refer to the relevant CME Group advisories:
Launch of CME Optimizer & IRS/Futures Portfolio Margin for Customers Update
Deliveries Plus Changes and New Functionality
Rules
Please refer to the CME Rulebook as follows for rules regarding Large Trader reporting and Transfers.
CBOT Rulebook, See Chapter 8, sections below:
Rule 853. TRANSFERS OF TRADES AND CUSTOMER ACCOUNTS
Rule 854. CONCURRENT LONG AND SHORT POSITIONS
CME Rulebook, See Chapter 5, section below:
Rule 561. REPORTS OF LARGE POSITIONS
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