Portfolio Margining of Cleared OTC Interest Rate Swaps and Futures

Tue Oct 16 10:20:00 CDT 2012 CT

Savings up to 90%

CME Group offers portfolio margining of our Eurodollar and Treasury futures and Cleared OTC IRS products for both house and customer accounts. Clearing firms and market participants have been taking advantage of portfolio margining and benefitting from significant margin savings. Five clearing firms are now utilizing portfolio margining, generating a savings of over $1.3 billion. The risk reduction achieved by this program has shown capital efficiencies of up to 90% for certain portfolios, figures that remain unparalleled in the industry. Our portfolio margining offering builds on the strength of our market leading interest rate products business.

What our customers are saying

"Bank of America Merrill Lynch has been receiving significant margin reductions in our house portfolio from CME portfolio margining, and we are excited to work with clients utilizing this solution. Our clients are active in both futures and cleared swaps, so it's critical that we're able to offer a portfolio margining solution that provides capital efficiencies while still maintaining prudent risk management standards. The scalable and automated portfolio margining solution that Bank of America Merrill Lynch and CME Group have created enables our customers to automatically free up their capital while reducing the capital risk utilization costs required to support their clearing activity."
--Bob Burke, Head of Global OTC Clearing, Bank of America Merrill Lynch

"CME Group and Morgan Stanley have delivered on a significant operational and financing enhancement that directly benefits Kepos Capital by freeing up clients' capital. With fees charged based on initial margin throughout the clearing value chain, portfolio margining of swaps and futures reduces our overall cost of clearing."
--Matt DesChamps, COO, Kepos Capital

"Morgan Stanley has developed a margin platform for our clients that enables them to capture significant capital efficiencies. The automated and scalable nature of the Morgan Stanley/CME Group solution allows us to seamlessly onboard clients who are interested in this offering."
--Jason Swankoski, US Head of OTC Clearing, Morgan Stanley

"Trading in Cleared OTC and Listed Derivatives is an important part of MUS International business - the cross margining benefits of cleared Interest Rate Swaps and Futures to our business is significant. We are excited about the offering and support we have received from both J.P. Morgan and CME Group, and this illustrates our commitment and continued momentum in the OTC and Listed Clearing space."
--Martin Ward, Head of Clearing, Mitsubishi UFJ Securities

"J.P. Morgan has partnered with Mitsubishi UFJ Securities and CME Group to launch Cross Margining of Cleared OTC Interest Rate Swaps and Futures. Building on our long standing relationships with CME Group, J.P. Morgan has built a robust, scalable infrastructure that enables clients to increase capital efficiency and reduce operational risk by combining their Listed Derivative and OTC Cleared positions into a single, streamlined margin and reconciliation process for both instruments."
--Dave Olsen, Global Co-Head of Clearing, J.P. Morgan

"Capital efficiency is very important to many of our clients and Citi is pleased to be able to deliver. On our optimizer platform, Citi and CME Group have been able to maintain the most robust risk management standards while our clients have realized material reductions in margin—across futures and cleared swaps."
--Christopher Perkins, Managing Director, Global Head of OTC Clearing, Citi

"RBS plc is pleased to partner with CME Group in an effort to recognize capital efficiencies across Interest Rate Futures and Cleared OTC IRS products. Innovations such as portfolio margining help reduce capital requirements and improve liquidity, enabling us to meet our number one goal of best serving our clients."
--Richard Volpe, Head of Global USD Rates Trading and Sales, RBS

"We are excited to be the first buy side customer to take advantage of CME Group's portfolio margining of cleared interest rate swaps and futures. This unique solution generates substantial margin savings that enable us to reduce our cost of clearing and make more productive use of our capital."
--Paul Britton, Founder and CEO, Capstone Investment Advisors

"Barclays is pleased to be the first clearing broker to achieve successful interest rate portfolio margining for clients. Clients are looking for service providers who can offer the greatest capital and operational efficiencies, and portfolio margining clearly achieves that goal. We will continue to work with our clients, CME Group and other clearing industry participants to expand portfolio margining to a fully automated and scalable proposition."
--Michael Yarian, Head of Agency Derivatives Services, Barclays

Unparalleled Capital Efficiencies

See an example of the initial margin savings achievable for swap spreads under three different margining scenarios.

Each scenario has a short position of 1000 10-Year CBOT Treasury Futures and a DV01 equivalent receive fixed swap position or long Deliverable Swap Futures position.

Separate Margining at Competing Clearinghouse
Treasury Futures Leg Margin $1,100,000
Swap Leg Margin $3,299,395
Combined Margin $4,399,395
IRS Portfolio Margining at CME Group
Cleared OTC IRS and Treasury Futures Margined Together $1,905,332
Total Savings from CME Group $2,494,063 (57%)
Portfolio Margining with DSF
Deliverable Swap Futures and Treasury Futures with Spread Credits $1,181,900
Total Savings from CME Group $3,217,495 (73%)

Deliverable Swap Futures

DSFs are the first futures contract that allow for delivery of a CME Cleared OTC Interest Rate Swap and provide margin offsets against our liquid Eurodollar and Treasury contracts.

Deliverable Swap Futures launched in December 2012 with strong support from the buy-side and dealer community. Customers will have opportunities for even greater savings once Deliverable Swap Futures become available for Portfolio Margining with Cleared OTC IRS in 2014.

For additional information on Deliverable Swap Futures and to view the DSF Liquidity Tracker Tool, visit www.cmegroup.com/dsf

Margin Optimization with CME CORE

CME CORE now supports margin optimization, which allows customers to calculate the ideal allocation of futures to move into an OTC account to minimize portfolio risk, and in turn, minimize IRS margin requirements. Margin calculations occur on a nightly basis and therefore, this tool was built to facilitate a nightly rebalancing process. IRS Clearing Members can utilize this functionality to calculate IRS portfolio margins for their clients, as well as their own proprietary accounts.

Features of CME CORE’s margin optimization functionality:

  • Automates the futures selection (via CME's proprietary optimization algorithm) and transfers generation process for futures into OTC accounts
  • Creates transfer messages that are compatible with Front End Clearing to effect the transfers on the books and records of the Clearing House
  • Solves operational hurdles by automating the transfer messages sent to CME for client accounts

To access CME Optimizer, please email: ClearingMiddleOffice@cmegroup.com

Additional Resources and Tools for Portfolio Margining

Optimize Your Portfolio

Futures & Options Trading

As the world's leading and most diverse derivatives marketplace, CME Group 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 the CME Globex electronic trading platform and 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.

Idea Exchange

Idea Exchange is your direct link to the product managers, marketers, and the development teams who create cmegroup.com and will allow you to review functionality, participate in focus and provide feedback on upcoming Web initiatives

Contact Us

CME Group/Chicago HQ:
Local: +1 312 930 1000
Toll Free: +1 866 716 7274

Global Customer Contacts

More CME Group Direct Lines
Phone list by department

Global Partnerships


Global Offices Contact Information

Calgary Houston Chicago New York Washington São Paulo Belfast London Singapore Hong Kong Seoul Tokyo Beijing

© 2014 CME Group Inc. All rights reserved.

CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX, and COMEX.