Membership Criteria, Monitoring & Stress Testing

Ensuring that Members are Able to Meet their Obligations

Our criteria for membership are stringent. We must be totally satisfied that a clearing member will be able to meet its financial obligations for all trades and positions held for transactions registered with CME Clearing Europe, and that it continues to be able to do so.

In addition to our initial vetting procedure and capital requirements, we monitor and stress test clearing members portfolios on a daily basis. These controls are designed as a collective risk protection: giving risk assurance to clearing members and their clients, as well as to CME Clearing Europe.

CME Clearing Europe and its clearing members are subject to rules and regulations covering all aspects of membership and clearing operations, full details of which are in the CME Clearing Europe Rulebook.

Membership Criteria

The membership criteria we enforce, which include stringent capital requirements and operations and risk management standards, are designed to ensure the financial integrity of clearing members’ pricing and margining, banking and custody, default resources and management. Our dedicated risk management team monitors and oversees these components daily.

Minimum Capital Requirements

CME Clearing Europe requires clearing members to maintain minimum net capital of £10m in order to clear OTC commodity derivatives and CME Europe Exchange FX Futures contracts. For OTC IRS we require the higher of: USD 50m; 20% of the aggregate collateral requirement for all its IRS accounts; or other capital requirements recommended by the IRS Risk Committee approved by the Clearing House. We follow standard regulatory definitions of capital in terms of quality and composition. Clearing members must also meet regulatory capital requirements, which in most cases require actual capital to be higher than the minimum we set. Our risk and membership team monitors clearing members' capital levels relative to the stipulated requirements on an ongoing basis.

Member Obligations

We do not evaluate the creditworthiness or market qualifications of individual clients. Rather, we expect clearing members to guarantee the financial performance of all transactions executed through them and registered with CME Clearing Europe, including client positions. We also expect clearing members to undertake suitable credit monitoring and risk management of their clients, and to that end we provide clearing members with tools to manage risk.

Monitoring & Stress Testing

CME Clearing Europe routinely re-calculates the value of open intra-day positions held by each clearing member and may call for additional cash payments, depending on the size of mark-to-market losses relative to collateral held.

Where possible, we monitor intra-day price movements and trading activity. To assess the impact of these price changes on clearing members, intra-day mark-to-market calculations are performed on clearing member positions at least once a day. Our risk and membership team reviews these positions and may require members to make additional cash payments.

Stress Testing

CME Clearing Europe risk and membership team conducts multiple types of stress testing on clearing members’ portfolios and client level positions on a daily basis. The stress test scenarios are modelled to reflect a diverse set of extreme but possible market conditions, with new scenarios introduced as appropriate.

Stress results are evaluated against margin collateral on deposit and clearing members’ financial resources. Depending on the results, we may ask a clearing member to provide additional information about its customer accounts, such as whether it has offsetting positions in markets other than within CME Group. The stress test results may also lead us to increase a clearing member’s margin requirement or request that they reduce or transfer positions.

Financial Reporting

Recognising the need to monitor the financial condition of clearing members, CME Clearing Europe requires them to submit regular financial reports. For FCA-regulated firms, we simplify the reporting requirements by accessing reports through the FCA. Our risk and membership team analyses these reports to ensure that all members comply with our membership requirements on an on-going basis.

Clearing Member Risk Reviews

CME Clearing Europe periodically visits clearing member firms to discuss and review financial, operational, credit, market, and liquidity risk management policies, procedures and capabilities.