News Release

The Options Clearing Corporation and CME Group Mark 20 Years of Cross-Margining Partnership

Tue Oct 06 2009

 

 

 

 

 

 

CHICAGO, Oct. 6 /PRNewswire-FirstCall/ -- The Options Clearing Corporation (OCC) and CME Group today commemorated the 20th anniversary of their highly successful cross-margining partnership that has brought greater efficiency and flexibility to the marketplace.

 

 

Since 1989, the OCC/CME Clearing cross-margining program has reduced systemic market risk by recognizing the offsetting value of hedged positions maintained across the two clearinghouses.

 

 

"This cooperative effort is as effective in reducing risk and enhancing firms' liquidity today as it was following the 1987 market break," said Michael E. Cahill, OCC President and Chief Operating Officer.

 

 

Our cross-margining agreement has been recognized by market makers as a way to further enhance safety and security during times of broader market events," said Kim Taylor, President of CME Clearing. "CME Group continues to develop and support relationships between clearing organizations where a strong risk management discipline is in place and can be enhanced in order to provide a greater value to the marketplace."

 

 

The combination of hedged positions cleared at different clearinghouses into a single portfolio for margin and settlement purposes allows risk to be assessed with greater accuracy and reduces initial margin requirements. During the increased volatility of the late 1980s, member firms of both OCC/CME were experiencing significant liquidity draws resulting from margin calls from one clearinghouse against a position where the firm maintained an offsetting position at another clearinghouse.

 

 

Clearing level margins are computed based on the combined positions maintained in the cross-margin accounts using the sophisticated risk-based margining systems of both clearing organizations. This results in one margin requirement for the firm covering both markets. Cross-margining continues to provide substantial savings for program participants as it has done over the past 20 years.

 

 

About CME Group

As the world's largest and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort®. These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk in both listed and over-the-counter derivatives markets.

 

 

The Globe logo, CME, Chicago Mercantile Exchange, CME Group, Globex, E-mini and CME ClearPort are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX and New York Mercantile Exchange are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. All other trademarks are the property of their respective owners. Further information about CME Group and its products can be found at www.cmegroup.com.

 

 

About OCC

OCC is the world's largest derivatives clearing organization by contract volume and open interest. Founded in 1973, OCC operates under the jurisdiction of both the Commodity Futures Trading Commission (CFTC) as a Derivatives Clearing Organization, and the Securities and Exchange Commission (SEC) as a Registered Clearing Agency. OCC now provides central counterparty (CCP) clearing and settlement services to 13 exchanges and platforms for options, financial and commodity futures, security futures and securities lending transactions.

 

 

As the CCP clearinghouse for the markets it serves, OCC assumes the counterparty risk of members involved in a trade--becoming the buyer to every seller and the seller to every buyer. OCC manages its risk of member default by collecting margin (collateral). Clearing member margin requirements are calculated using OCC's proprietary System for Theoretical Analysis and Numerical Simulations (STANS) that uses large-scale Monte Carlo simulations to forecast price moves and correlations to make those margin determinations. In 1993, OCC became the first clearinghouse to receive a 'AAA' credit rating from Standard & Poor's Corporation, and has continued to receive that high rating every year as a result of its risk management standards.

 

 

OCC operates as a utility clearinghouse, owned by several of its participant exchanges but with a Board of Directors majority drawn from its clearing members, allowing it to provide highly efficient but low-cost solutions to the markets it serves. More information about OCC is available through its Web site at www.optionsclearing.com.

 

 

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SOURCE CME Group

SOURCE: CME Group

Web site: http://www.cme.com/
http://www.optionsclearing.com//

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