This advisory details new reporting requirements for FCMs stemming from certain CFTC regulations going into effect on November 8, 2012. There are two inter-related functional areas: Customer Gross Margining (CGM) and LSOC (Legally Segregated, Operationally Commingled). Customer Gross Margining will apply both to products which are under the futures regulatory regime and to products which are classified as cleared swaps for regulatory purposes. LSOC will apply only to cleared swaps customer accounts.
Reporting for Customer Gross Margining
Customer Gross Margining will require a significant change in how derivatives clearing organizations (DCOs) calculate performance bond (initial margin) requirements for customer positions. Specifically, under CFTC Regulation 39.13(g)(8)(i), DCOs will be required to set minimum performance bond levels as the sum of requirements calculated for each individual customer account.
This new method of customer gross margining will require CME Clearing and some other DCOs to switch from the “modified customer gross margining method” which has long been used. Under the existing method, clearing firms categorize individual customer account positions according to the degree to which risk offsets exist, and report this data twice daily (as the “spreads” information included in the PCS submission used to determine open interest). The new method will assure that client account risk offsets will be applied only for the benefit of each individual customer account.
For more information please contact CME Clearing's Risk Department at 312-648-3888.
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