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

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

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

Product

Margin

ES

$11,800

ZN

$2,125

ZF

$1,400

Order History

Product

Open Long

Filled Long

Usage

(Margin/Qty)

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

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

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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