Effective Monday May 7, 2012, the CFTC is requiring the use of “initial to maintenance ratios” for non-hedge customer positions in cleared swaps. These will work in a manner exactly analogous to the way they have long worked for futures.
So for example, suppose a non-hedge (“spec”) customer holds positions at your FCM in CME’s cleared interest-rate swaps, and the minimum initial margin (“performance bond”) requirement for that customer is calculated by CME Clearing as $1,000,000. Suppose further that the initial to maintenance ratio for IRS is set by CME Clearing as 1.10.
This means that the “maintenance” requirement level that you must assess for the customer is $1,000,000 and the “initial” requirement level is $1,100,000. (1.10 times the maintenance level.)
On the first day that the non-hedge customer holds CME-cleared IRS positions at your FCM, the higher “initial” requirement level applies. Thereafter, as long as the customer has enough collateral on deposit to meet the lower “maintenance” requirement, no margin call need be issued. But if on any particular day the customer’s collateral level falls below the maintenance level, then the higher “initial” requirement level applies, and the customer must deposit collateral to come back up to that higher level.
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