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.
Current GC2 | Enhanced GC2 |
---|---|
Allowable Clip Size – Most Restrictive Available Exposure/Dynamic Margin Rate Max Quantity Limit Available Exposure/Selected Product Margin Rate in RMT UI | Allowable Clip Size – Most Restrictive Available Exposure/Specific Listed Contract Margin Rate Max Quantity Limit |
Futures Margin Rates – Static Values from Previous Friday End-of Day | Futures Margin Rates – Updated Daily COB |
Strategies (Futures and Options) Spread Discount Given after Order Acceptance | Strategies (Futures and Options) Order Acceptance Based on Spread Discount Value No change in Spread Usage calculation methodology |
Option Risk Values SPAN 13th Risk Array Static Values from Previous Friday End-of Day | Option Risk Values Option Delta * Futures Margin Rate Option Deltas Updated Daily COB Minimum Risk Value - $20 |
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.
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>" |
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:
Product | Margin |
---|---|
ES | $11,800 |
ZN | $2,125 |
ZF | $1,400 |
Order History
Product | Open Long | Filled Long | Usage (Margin/Qty) |
---|---|---|---|
ES | 10 | $118,000 | |
ZN | 10 | $21,250 |
Total Quantity: 20
Total Usage: $139,250
Example 1
New Futures Order
Side | Quantity | Contract |
---|---|---|
Buy | 500 | ZFM4 |
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
Size | Quantity | Contract |
---|---|---|
Buy | 2000 | ZNM4-ZNU4 |
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
Current GC2 | 13th Risk Array | Derived COB - Previous Friday | |||
Example | ESM4 P5000 | Risk Value | |||
Date | Future Settle | ||||
Friday | 4/19/2024 | 5003.75 | Underlying Future Margin Rate | $11,800 | |
13th Risk Array | $8,561 |
Enhanced GC2 | |||||
Date | Future Settle | ||||
Friday | 4/19/2024 | 5003.75 | Underlying Future Margin Rate | $11,800 | |
Delta | 0.479 | $5,652 | |||
Monday | 4/22/2024 | 5047.50 | Underlying Future Margin Rate | $11,800 | |
Delta | 0.422 | $4,980 | |||
Tuesday | 4/23/2024 | 5106.50 | Underlying Future Margin Rate | $11,800 | |
Delta | 0.345 | $4,071 |
Options Minimum Risk Value
Current GC2 | 13th Risk Array | Derived COB - Previous Friday | |||
Example | OZFK4 C1075 | Risk Value | |||
Date | Future Settle | ||||
Friday | 4/19/2024 | 105.0625 | Underlying Future Margin Rate | $1,400 | |
13th Risk Array | $7 |
Enhanced GC2 | |||||
Date | Future Settle | ||||
Friday | 4/19/2024 | 105.0625 | Underlying Future Margin Rate | $1,400 | |
Delta | 0.0025 | $3.50 | |||
Minimum Risk value | $20 |
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