Margin Overview

The following describes the products and processes of CME CORE margining:

Products:

• Interest Rate Swaps (includes Portfolio Margining and Optimization)
• Delta Ladder (includes Portfolio Margining and Optimization)
• Foreign Exchange (FX)
• Futures and Options (F&O)

Margining Processes:

• Futures and Options Margin
• IRS/Delta/Interest Rates Futures Portfolio Margining
• Margin Optimization
• Historical Value at Risk (HVaR)
• Simplified Incremental VaR Analysis

To Switch between product screens, use the Margin Matrix.

Products

Interest Rate Swaps

Interest Rate Swaps (IRS) are calculated using Historical Value at Risk (HVaR). Interest Rate Swaps can be margined against Futures and Options and are available for Fixed vs. Floating Swaps and Basis Swaps.

Input options include:

• Upload .CSV file or manually enter proposed trade data:
• Vanilla
• OIS
• Zero Coupon
• Basis
• FRA
• Import Trades or Variable Notional Schedule

See Amortizing Swaps Clearing for more on Variable Notional Swaps.

See Cleared OTC Initiatives - CME Group: An Overview for more on Interest Rate Swaps.

 

Simplified Incremental VaR Analysis

Simplified Incremental VaR Analysis is triggered through the Combine Selected functionality. This functionality provides the ability to easily combine two or more portfolio that contain IRS trades or a delta ladder, and receive the margin results for the new aggregate portfolio.

Delta Ladder

Delta Ladder Estimation Engine provides low latency IRS margin calculation for portfolios represented by DV01 across the tenor / curve structure. The Estimation Engine estimates results that are generally within a couple percentage points of variance from full revaluation, and is recommended for use with low latency estimation of results. Delta Ladders can be margined against Futures and Options.

The portfolio is populated based on apportioning DV01 to various IRS curves and tenor buckets. For example, a 10-year swap with DV01 of 100 on a USD 3-Month Libor Trade could be entered in CME CORE by populating the 3656 day (10-year) column in the Delta ladder entry screen and using a 3-Month Libor Curve.

The generated reports include:

• Margin Report
• Delta Ladders

Simplified Incremental VaR Analysis can also be run on Delta Ladder portfolios.

Optimization can be performed from the Rates Calculation screen.

See Delta Ladder Spec for more on creating Delta Ladders in CME CORE.

Foreign Exchange

OTC FX Clearing provides a post-execution clearing and settlement service designed to meet the risk-mitigation needs of market participants. This allows customers to retain the flexibility of OTC products and to utilize any established OTC execution method, while addressing counterparty credit risk.

The generated report includes:

• Account information

See Cleared OTC Initiatives - CME Group: An Overview for more on FX trading.

Futures and Options

Futures and Options supports calculation of all eligible futures and options contracts by the following exchanges:

• CME
• NYMEX
• COMEX
• CBOT

Interest Rate Futures and Options are available for portfolio margining and are calculated using CME SPAN framework.

The generated reports include:

• IRS & Delta Ladder & Futures (SEQ) Portfolio Margin Details (pending asset classes)

Note: Access from the Rates tab if Futures and Options are margined with IRS and / or Delta Ladder.

• Futures and Option Report (Futures and Options only)

Margining Processes

Futures & Options Margin

Portfolios containing CME-cleared Futures & Options contracts are margined using the SPAN® and/or SPAN 2® margin framework. More details:

• SPAN
• SPAN 2

Porfolio Margining is accessed from the FX and F&O Calculator screen.

IRS/Delta/Interest Rates Futures Portfolio Margining

Portfolio Margining provides the ability to margin Interest Rate Swaps and/or Delta Ladders with Interest Rate Futures by leveraging the current multi-currency HVaR framework. CME CORE calculates savings from a total costs perspective.

Porfolio Margining is accessed from the Rates Calculator screen.

The generated reports include:

• IRS Trades & Futures (SEQ) Portfolio Margin Details
• Delta Ladder & Futures (SEQ) Portfolio Margin Details
• IRS & Delta Ladder & Futures (SEQ) Portfolio Margin Details

See Portfolio Margining of Cleared OTC IRS Swaps and Futures for more on portfolio margining.

Margin Optimization

The Margin Optimizer specifies the ideal allocation of Interest Rate Futures and Options to move into the OTC Customer Cleared Swaps account to minimize portfolio risk, and therefore, reduce margins. Clearing Members can use the Margin Optimizer to facilitate Portfolio Margining for both their clients and their house accounts. Interest Rate curve sensitivities in the form of Delta Ladders and/or Interest Rate Swaps are optimized against Futures.

Margin Optimization is accessed from the Rates Calculator screen.

The generated reports include:

• IRS Portfolio Margin Optimization Report
• Delta Ladder Portfolio Margin Optimization Report
• IRS & Delta Ladder Portfolio Margin Optimization Report

See CME CORE Margin Optimization Demo for a demo.

Historical Value at Risk (HVaR)

• HVaR calculation for Interest Rate Swaps, Delta Ladder, Portfolio Margining and Margin Optimization:
• Margins are built to provide 99% coverage over a 5-day closeout Period
• Historical scenarios are:
• Generated using a 5-year look back period
• Synchronized across all observed tenors on the zero curve, across all currencies
• Scaled using Exponentially Weighted Moving Average (EWMA) based volatility forecasts
• Margin is currently the 99.7 percent of portfolio changes (loss) across all scenarios

• HVaR calculation for FX:
• Initial margins calculated utilizing historical VaR, using a 99%, 5-day loss coverage assumption.

Simplified Incremental VaR Analysis

Simplified Incremental VaR Analysis is useful for running a base portfolio of Interest Rate Swaps or Delta Ladders each day and then adding in smaller IRS portfolios without having to do a margin re-run—essentially dynamic margin creation. This tool is typically used when very large portfolios are used and re-running the portfolios with additional trades would be time consuming.

Simplified Incremental VaR Analysis is accessed via the Combine Selected function of the Rates Calculator screen.