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Portfolio Margining of Interest Rate Swaps and Interest Rate Futures and Options allows the Clearing House and Clearing Members to recognize reduced risks associated with offsetting open positions, along with the following potential benefits:

  • Reduce margin requirements for portfolios containing both products
  • Reduced regulatory capital costs for FCMs
  • Reduced Guaranty Fund requirements for FCMs 

Customer Portfolio Margining leverages a 5-day, multi-currency Value at Rick (VaR) framework, applying this methodology to Eurodollar and Treasury futures and options prices.

This topic provides the context and functional specification for OTC IRS Customer Portfolio Margining as follows:

Contents

Firm Readiness Checklist

Follow the steps below to utilize Portfolio Margining for OTC Interest Rate Swaps.

#

Checklist Item

Guidance

1

Request Optimizer

Email CME Group CORE Team at: CME.CORE@cmegroup.com

CME will enable download of CME Optimizer from CORE within 24 hours of request

2

Execute Legal

Once optimizer request is received by CME, CME will provide a user ID to install the Optimizer. Users will agree to a “click through” Optimizer EULA to proceed with software installation.

CME will enable download of CME Optimizer within 24 hours of request

3

Download Optimizer

Once user executes Optimizer EULA, an install wizard will guide users through Optimizer configuration.

Read “READ ME”. Configure Optimizer for testing.

Set up of Optimizer and initial testing will take 1-2 hours

4

Request Account Setup, if necessary

Contact CME Onboarding team at Onboarding_Clearing@cmegroup.com to process onboarding of new Portfolio Margin trading member firm (TMF). Once complete, users will require updated access to below systems via the EASE registration team.

  • FEC/FEC+ (for executing transfers)
  • EREP Reporting (Operations, Risk, Financial, Deliveries)

New trading accounts should be created in Account Management Service and link to an OTC IRS account

Trading Account set up may take up to 24 hours to complete.

5

Access CME-Produced Optimizer Inputs from secure FTP site

  • See full list of necessary files below

Clearing Member process

6

Develop process to create Firm Produced Optimizer input files

Clearing Member process

7

Develop process to read Optimizer Outputs

  • Review human readable transfer file.
  • Understand contents of log file.
  • Process transfer messages with CME.

Clearing Member process

8

Test in NR

Transfers are submitted to new Portfolio Margining Account (prior to 8pm EST cutoff):

  • Transfers entered:

-       into FEC

-       sent via MQ messages

  • Transfers verified in Positions
  • FIXML transfer messages verified
  • Transfers submitted to new Portfolio Margining Account following 8pm EST cutoff will be effective for next trade date.

-       Transfers verified in FEC.

-       Transfers verified in Positions (present in default futures account under the new TMF).

-       FIXML transfer messages received from clearing update bookkeeping system.

Clearing Member process

9

Confirm successful Customer Portfolio Margining Execution

Confirm injection of xml into FEC using MQ.

Clearing Member process

10

Reconciliation of EOD Reporting

  • Verify FIXML Trade Register contains transferred positions held in new TMF.
  • Verify IRSXV reporting contains variation for positions held in the portfolio margining account.
  • Verify positions on POS591MP EREP report.

Clearing Member process

11

Tie out of CME Reporting

  • Sum of Net Cash flow by origin/breakout currency on CME IRSXV to EREP CST620 reporting relevant asset account.
  • Sum of Settlement Initial Margin by origin/breakout currency on the CME IRSMR3 to EREP CST610 reporting for relevant asset account.

Clearing Member process

Contact

Onboarding Team

312-338-7112

Onboarding_Clearing@cmegroup.com

CORE Team

312-580-5353

CME.CORE@cmegroup.com

Supported Products

The following products are supported for Customer Portfolio Margining:

  • All OTC IRS Swaps
  • IR Futures and Options as follows:
  • All eligible and ineligible Interest Rate Futures and Options products indicated below should be included in the Position Input to the Optimizer; however, only the eligible futures and options contracts will be included in the Optimizer offset solution. 
  • All ineligible products (even those not in the below list) included in the Optimization process will still allow a successful Optimization run; however, they will only produce margin data and will not be included as part of the Optimization results.
NameProduct TypeExchangeEligible CME Globex Contract CodesClearing House Codes (used in Positions.csv input file)

Eurodollar Futures

Eurodollar Futures

CME

GE

ED

Eurodollar Options

Eurodollar OptionsCME

GE

ED

Eurodollar Mid-curve Options

Eurodollar OptionsCME

GE0 - GE5

E0, E2, E3, E4, E5
One-Month SOFR Futures*SOFR FuturesCMESR1SR1
Three-Month SOFR Futures*SOFR FuturesCMESR3SR3

U.S. Treasury Bond Futures

U.S. Treasury Futures

CBOT

ZB

17

10-Year U.S. Treasury Note Futures

U.S. Treasury Futures

CBOT

ZN

21

5-Year U.S. Treasury Note Futures

U.S. Treasury Futures

CBOT

ZF

25

2-Year U.S. Treasury Note Futures

U.S. Treasury Futures

CBOT

ZT

26

30-Day Federal Funds Futures

U.S. Treasury Futures

CBOT

ZQ

41

Ultra U.S. Treasury Bond Futures

U.S. Treasury Futures

CBOT

UB

UBE

Ultra 10-Year U.S. Treasury Note Futures

U.S. Treasury Futures

CBOT

TN

TN

2-Year USD MAC Swap Futures

U.S. Swap Futures

CBOT

T1U

T1U

5-Year USD MAC Swap Futures

U.S. Swap Futures

CBOT

F1U

F1U

10-Year USD MAC Swap Futures

U.S. Swap Futures

CBOT

N1U

N1U

30-Year USD MAC Swap Futures

U.S. Swap Futures

CBOT

B1U

B1U

*Live in portfolio margin program in production on April 26, 2021. See Optimizer release notes here.

Additional ineligible contracts to include in Positions input file are as follows.

Product Asset ClassProduct Type*Clearing House Codes

CBOT Interest Rate

FUT, OOF3YR
OOF17
OOF21
OOF25
OOF26
OOF41
OOFUBE
OOFTN
OOF

TW1, TW2, TW3, TW4, TW5

WT1, WT2, WT3, WT4, WT5

OOF

FV1, FV2, FV3, FV4, FV5

WF1, WF2, WF3, WF4, WF5

OOF

TY1, TY2, TY3, TY4, TY5

WY1, WY2, WY3,WY4, WY5

OOF

US1, US2, US3, US4, US5

WB1, WB2, WB3, WB4, WB5

OOF

UL1, UL2, UL3, UL4, UL5

WU1, WU2, WU3, WU4, WU5

OOF

TN1, TN2, TN3, TN4, TN5

WX1, WX2, WX3, WX4, WX5

OOFFF1, FF6
FUTS1U
FUTE1U
FUTT1E
FUTF1E
FUTN1E

CME Interest Rates

FUT, OOFEM
OOFSPO
FUTEB
FUT, OOFBU2, BU3, BU5
OOF1K, 2K, 3K, 4K, 5K
OOFEE1, EE2, EE3, EE4, EE5
OOFEF1, EF2, EF3, EF4, EF5

*Where FUT = future and OOF = Option on a Future.


Account Setup

The Portfolio Margining account must be set up in the below manner:

  • Firms currently utilizing the HOUSE Portfolio Margining Program – the HOUSE TMF will be leveraged for the Customer Accounts which will be created.
  • Firms which do not currently have a HOUSE TMF, CME will add this value. Please email onboarding@cmegroup.com with this request.
  • Firms shall set up a new Portfolio Margining Position Account. 
    • Onboarding new clients for creating new IRS trading and porfolio margin accounts should follow the steps here.
    • For client or house accounts already trading OTC IRS, FCM back office managers can simply create a new portfolio margin account in Account Management Service and link to an IRS margin account.

The interest rate futures and options positions for Customer Portfolio Margining must be held in a separate and newly created Position Account for this purpose. The existing OTC IRS Performance Bond (PB) account will be leveraged for Portfolio Margining purposes as shown below.

All of the accounts must only contain interest rate futures and options for portfolio margining (along with OTC IRS).

Position Management

This topic pertains to IR Futures and Options and not OTC IRS.

Should Clearing Members choose not to utilize the CME Optimizer, and independently establish the optimal allocation of positions for margining, firms may move trades between the existing futures account and a portfolio margining account.

Please note the following:

  • Trades may be moved on Trade Date or after Trade Date using processes outlined in the following sections.
  • Trades must be moved in FEC before 8:00 PM EST
  • CME will send messages to CMF back offices in real time, for activity related to Portfolio Margining.
  • CME will process a PCS report from the Clearing Members that reflects adjusted Interest Rate Futures and Options numbers for Futures position account.
  • CME will process a PCS report from the Clearing Members that reflects the new Portfolio Margining Futures position account; however, the default setting is to net positions, so no PCS is required.
  • CME will produce a Variation Summary file showing VM on each account. Swaps margin calculations begin at 8 PM EST, rather than 7 PM EST. Swaps Margin Reports will move to 10:00 PM EST with a Critical SLA of 11 PM EST, from 9 PM EST.
  • Swaps margin calculations begin at 8 PM EST, rather than 7 PM EST. Swaps
  • Margin Reports will move to 10:00 PM EST with a Critical SLA of 11 PM EST, from 9 PM EST.

To manage positions on Trade Date, Clearing Member Firms may utilize any of the following methods described below:

1. Direct execution to the Portfolio Margining account.

2. Initiate Give-up to the new account, via FEC API or directly from the GUI.

3. Initiate Transfer to the new account, via FEC API or directly from the GUI.

After Trade Date, CME recommends utilizing the Transfer process (step 3 above), although Give-Ups may be initiated up to 4 business days after trade date.

Direct Execution to PM Account

In this scenario, user of the CMF specifies the appropriate portfolio margining account upon trade execution. The IR future or option is then routed to this account, eliminating the need to transfer this trade at a later time.

  • This option requires configuration for “point of execution” in CME Globex
  • All accounts that intend to execute directly into a PM account should coordinate with the CME Globex Account Management (GAM) team.

Give-Up

Give-Ups may be executed through the FEC API or directly in the application. If performed through the API, CMFs can give-up a single trade from the default futures account to the appropriate portfolio margining account. This allows CMFs to send a group of trades or a portion of a group of trades to the destination account. For portfolio margining purposes, this allows middleware to setup rules for routing trades between accounts throughout the day. All messaging to CMFs will be real-time.

Once CME Clearing has confirmed a trade, a CMF may submit replace (change) instructions to update information specific to the Clearing Member Firm, such as Account, Origin, and CTI.

Clearing Member to CME – Change Message Marking for Give-Up

The below message is sent to CME from CMFs, marking a trade for Give-Up: TransTyp=”2”, give-up indicator set (AllocInd=”2”) and give-up information contained in the Allocation block:

<FIXML>
    <TrdCaptRpt RptID="135BAC214D3AP0002C7C22055701496" TransTyp="2" RptTyp="0" TrdTyp="0" TrdDt="2019-06-27" BizDt="2019-06-27" MLegRptTyp="1" MtchStat="0" MsgEvtSrc="MQM" TrdRptStat="0" TrdID="100619" TrdHandlInst="0" LastQty="1" LastPx="98.475" TxnTm="2019-06-27T05:57:01-06:00">
        <Hdr Snt="2019-06-27T05:57:01-06:00" SID="999" TID="CME" SSub="CME" TSub="CME"/>
        <Instrmt Sym="GEZ0" ID="ED" CFI="FFDCSO" SecTyp="FUT" Src="H" MMY="20201200" MatDt="2020-12-14" Mult="2500" Exch="CME" PxQteCcy="USD"/>
        <RptSide Side="1" ClOrdID="117467599" InptSrc="MQM" InptDev="API" CustCpcty="1" OrdTyp="M" AllocInd="2" SesID="ETH" SesSub="E" OrdID="528262" AgrsrInd="Y">
            <Pty ID="CME" R="21"/>
            <Pty ID="CME" R="22"/>
            <Pty ID="999" R="1"/>
            <Pty ID="TESTERS" R="24">
                <Sub ID="1" Typ="26"/>
            </Pty>
            <Alloc Qty="1">
                <Pty ID="CME" R="22"/>
                <Pty ID="909" R="1"/>
                <Pty ID="IRS_XMGRN" R="24"/>
            </Alloc>
            <TrdRegTS TS="2019-06-27T05:57:01-06:00" Typ="1"/>
        </RptSide>
    </TrdCaptRpt>
</FIXML>


CME Acknowledgment Message to Executing Firm

<FIXML>
    <TrdCaptRptAck RptID="135BAC214D3AP0002C7C22151040438" TransTyp="2" RptTyp="0" TrdTyp="0" MtchID="135BAC214D3AP0002C7C20" ExecID="00563420120227055701TN0000039" PxTyp="2" TrdDt="2019-06-27" BizDt="2019-06-27" MLegRptTyp="1" MtchStat="0" MsgEvtSrc="CMESys" RptRefID="135BAC214D3AP0002C7C22055701496" TrdRptStat="0" TrdID="100619"
TrdID2="135BAC214D3AP0002C7C22" TrdHandlInst="0" LastQty="1" LastPx="98.475" TxnTm="2019-06-27T15:10:40-06:00">
        <Hdr Snt="2019-06-27T15:10:40-06:00" SID="CME" TID="999" SSub="CME" TSub="CME"/>
        <Instrmt Sym="GEU8" ID="ED" CFI="FFDCSO" SecTyp="FUT" Src="H" MMY="20201200" MatDt="2020-12-14" Mult="2500" Exch="CME" PxQteCcy="USD"/>
        <RptSide Side="1" ClOrdID="117467599" InptSrc="GBX" InptDev="API" CustCpcty="1" OrdTyp="M" SesID="ETH" SesSub="E" AllocInd="2" OrdID="528262" AgrsrInd="Y">
            <Pty ID="CME" R="21"/>
            <Pty ID="CME" R="22"/>
            <Pty ID="999" R="1"/>
            <Pty ID="TESTERS" R="24">
                <Sub ID="1" Typ="26"/>
            </Pty>
            <Pty ID="3H1L" R="12"/>
            <Pty ID="CAB" R="44"/>
            <Pty ID="999" R="4"/>
            <Pty ID="V92381" R="55"/>
            <Pty ID="999" R="38">
                <Sub ID="1" Typ="26"/>
            </Pty>
            <Pty ID="GB" R="54"/>
            <Alloc Qty="1">
                <Pty ID="CME" R="22"/>
                <Pty ID="909" R="1"/>
                <Pty ID="IRS_XMGRN" R="24"/>
            </Alloc>
            <TrdRegTS TS="2019-06-27T05:57:01-06:00" Typ="1"/>
        </RptSide>
    </TrdCaptRptAck>
</FIXML>


Allocation Instruction Alert to Executing Firm

The below message is sent from CME to the Executing Firm, indicating the trade (TrdID="100619") was marked for post-trade processing (Give-UP → PostTrdTyp = 0 / APS → PostTrd Typ = 1):

<FIXML v="5.0 SP2" xv="109" cv="CME.0001">
    <AllocInstrctnAlert  ID="135BC5169BDFEC0001CA4A6151040543" GrpID="109931" SesID="ETH" SesSub="E" AvgPx="98.475" TrdDt="2019-06-27" ClrDt="2019-06-27" TrdTyp="0" Stat="6" MLegRptTyp="1" TxnTm="2019-06-
27T15:10:40-06:00" InptDev="API" InptSrc="GBX" TransTyp="0" Typ="13" Qty="1" GrpQty="1" Side="1"
PostTrdTyp="0">
        <Hdr Snt="2019-06-27T15:10:40-06:00" SID="CME" TID="123" SSub="CME" TSub="CME"/>
        <OrdAlloc ClOrdID="117467599"/>
        <AllExc TrdID="100619" LastQty="1" LastPx="98.475"/>
        <Instrmt Sym="GEZ0" ID="ED" CFI="FFDCSO" SecTyp="FUT" SubTyp="O" MMY="20201200" MatDt="2020-12-
14" Mult="2500.0" Exch="CME" PxQteCcy="USD"/>
        <Pty ID="CME" R="22"/>
        <Pty ID="123" R="1"/>
        <Pty ID="3H1L" R="12"/>
        <Pty ID="TESTERS" R="24">
            <Sub ID="1" Typ="26"/>
        </Pty>
        <Pty ID="CME" R="21"/>
        <Pty ID="API" R="200"/>
    </AllocInstrctnAlert>
</FIXML>

Transfer

In this scenario, a Clearing Member Firm initiates a Transfer of a single trade or a position within a given contract to be transferred. Transfers will offset the original trade/position and will update the position in the destination account. Users may leverage the FEC API to develop further automated processes or the FEC GUI to execute transfers.

For all Clearing Member Firm API documentation, please reference the CME Document Directory at the following link: http://www.cmegroup.com/clearing/systems-operations/technical-standards.html.

Specifically:

  • Allocate Claim FIXML API Users Guide
  • FIXML Two Party Trade Submission for Match by Clearing Overview
Transfer Requirements in FEC

Please see Transfer Management Chapter of the FEC Plus user guide here for instructions. Please note:

  •  Account – Portfolio Margining Account number (firm defined)
  •  Firm – Trading Member Firm (TMF) which currently holds the position
  •  Opposite Firm – Default Portfolio Margining trading Firm (TMF) (assigned by CME)
  •  Transfer Reason Code – “M” (Portfolio Margining)
Transfer Flow in FEC 

 The combination of TMF and Account ID on the transfer message dictate where the position will flow:


Scenario 1: TMF is correct, and the Account ID indicated matched a customer-specific Portfolio Margining Position Account as defined at CME Clearing.

  

  •  The position will be held and margined alongside that Customers Interest Rate Swaps



Scenario 2: TMF is correct, but the Account ID indicated does NOT match a customer-specific Portfolio Margining Position Account as it is defined at CME Clearing.

  • The position will be held and margin alongside the Customer Segregated account of the firm.

CME Optimizer

To facilitate Customer Portfolio Margining, CME Group provides the CME Optimizer as an option available for download to facilitate a straight through processing.

The Optimizer accepts as inputs various CME-produced data files as well as a firm-produced file outlining the current allocation of a portfolio’s futures and options positions to be cross-margined with Interest Rate Swaps, then recommends a more optimal allocation to improve Margin requirements. CME Optimizer is made to run in batch, processing multiple portfolio allocations through each run. CME Optimizer also gives transfer message files (in FIXML format) if an FCM would like to execute the recommended transfers at the end of each day. This translates into a substantial cost savings for clients who clear at CME Group.

The current production version of the Optimizer is 15.0. Version 16.0 is now available for testing and is required for mandatory adoption on April 26, 2021. For further details about Optimizer 16.0, please see the detailed release notes page.

Example

Given two portfolios, one of Interest Rate Swaps and one of eligible Interest Rate Futures and Options, the CME Optimizer will:

  1. Derive the optimal allocation of existing Futures and Options positions for SPAN and OTC IRS VAR (historical and stressed Value at Risk) margin treatment.
  2. Deduce the net positions in each contract that should be transferred from one account to the other.
  3. Provide FIXML transfer messages compatible with CME Clearing systems, which the Clearing Member Firm may submit only after CME’s ITD cycle, to move the positions on the books and records of the Clearing House (which then produce confirmation messages Clearing Members can use to update their books and records).

 

  • CME does not allow transfers to take place prior to the CME ITD settlement cycle on a business day. Transfers must take place between 12pm CT - 7pm CT.
  • The Optimizer does not need to be run on USD Banking or Exchange holidays.

Optimizer Program Diagram

Optimizer Technical

Technical details related to installing the Optimizer, system requirements, and running Optimizer can be found at the dedicated Optimizer User Guide here.

Once the data is read into the Optimizer and parsed, the Optimizer will process the data and calculate what transfers (if any) can be made to improve the allocation of futures and options to take advantage of CME’s Portfolio Margining program. The Optimizer can process multiple portfolios (PB accounts and associated PM and SEG accounts) in batch. Therefore, multiple portfolios may be represented in portfolio input files.

Position Netting

Position netting feature helps users avoid maintaining concurrent long and short positions between the SEG and PM accounts. The netting process takes place after Treasury Delivery Roll Logic (if applicable) and before Optimization. Please note this process may produce up to three sets of transfers: 1) Delivery Roll Log Transfers, 2) Netting Transfers, 3) Optimizer Transfers (Deliveries Roll Log and Netting are configurable options, which must be enabled to utilize). If both of these options are enabled, Deliveries Roll Log will impact eligible positions for netting, and Netting will impact eligible remaining positions for Optimization.

The following is a detailed overview of netting logic:

1. Prior to Optimization

The first step of the netting process calculates the net position within the SEG account and PM account. This action provides the pre-netting allocation (e.g. 100 x 0 = +100 SEG, 0 x 100 = -100 PM).

2. Netting

If concurrent long and short positions across the SEG and PM accounts are found, the netting process then transfers the maximum amount of positions resulting in one of the accounts (PM or SEG) being net zero.

Continuing the example, SEG: 100 x 0 and PM: 0 x 50 results in 50 buys to the PM account and 50 sells to the SEG account.

3. Optimized Position

The third step feeds the Optimizer amended positions that represents a reduction in open interest by the quantity that was transferred.

Continuing the example, SEG was 100 x 0, 50 sells came in, thus 50 x 0 would be sent into the Optimizer for optimization in the SEG account. PM was 0 x 50 and 50 buys came in, thus 0 x 0 would be sent into the Optimizer for optimization in the PM account.

The other four Use Cases (below #2-5) show scenarios where netting is applied but the position is not closed out.

Use Case #1: Vanilla - Equal Offsetting Postion


SEG


PM



L

S

L

S

Prior to Optimization

100

0

0

100

Netting


100

100


Optimized Position

0

0

0

0

Use Case #2 - Close out SEG Risk




SEG


PM



L

S

L

S

Prior to Optimization

800

0

0

1000

Netting


800

800


Optimized Position

0

0

0

200

Use Case #3 - Close out PM Risk




SEG


PM



L

S

L

S

Prior to Optimization

800

0

0

100

Netting


100

100


Optimized Position

700

0

0

0

Use Case #4 - Equal and Offsetting Positions (no net PM risk exposure, no position to move)



Prior to OptimizationSEG
PM
NettingLSLS
Optimized Position1000900900900

0000

1000900900900
Use Case #5 - Gross Positions with Netting*



Prior to OptimizationSEG
PM
NettingLSLS
Optimized Position1000500400600


200200

800500400400

*Note: For gross position keeping, it is recommended to set NettingEligible flag in the positions file to 'N'. The NettingEligible Flag is portfolio-level.

Once the optimal allocation of futures and/or options has been found, the Optimizer will generate 6 output files: a CSV Margin summary file, a FIXML file containing associated transfer messages, an Optimizer Log file, a Total Savings Report file and a Funding Impact file.

There will be 1 CSV and 1 FIXML file created per execution of the Optimizer. For instance, if the Delta Ladder and Positions files contain 5 separate portfolios within them, there will be a single CSV and FIXML output containing optimized position allocations for 5 portfolios. The FIXML file is in a format ready to be sent to CME for clearing.

 

Optimizer Transfer File - csv

CSV Summary file of the optimized position allocations for all portfolios included in the Optimization run.

Report Name and Location is: (Optimizer output folder)

csvTransfersYYYYMMDD.csv

Optimizer Transfer File - FIXML

FIXML file containing associated transfer messages for the optimized position allocations for all portfolios included in the Optimization run.

Report Name and Location is: (Optimizer output folder)

fixmlTransfersYYYYMMDD

Optimizer Log File

File containing the number of portfolios successfully processed, number of portfolios that resulted in successful transfers and error details.

Report Name and Location is: (Optimizer output folder)

OptimizerLogYYYYMMDD

Total Savings Report

Total Margin savings in USD and percentage which has been attained through the use of Portfolio Margining as compared with the margin which would have been required without the application of Portfolio Margining per PB Account.

Report Name and Location is: (Optimizer output folder)

Total Savings EstimateYYYYMMDD.csv

Transfers by PB Account Subdirector

The Transfers by PB Account Subdirectory splits the original csv Transfers file into client level summaries per PB account.

Report Name and Location is: (Optimizer output folder) Subfolder: TransfersByPbAccount

Report naming convention: (PBACCTID)_YYYYMMDD.csv

Funding Impact Report

The Funding Impact Report shows the difference between the margin requirements before and after

Optimization based on the allocation of Futures and Options in the positions.csv file and proposed transfers.

Report Name and Location is: (Optimizer output folder) FundingImpactYYYYMMDD.csv

Margin Summary Report

The Margin Summary Report includes Margin Calculation information calculated during optimization runs and provides base IRS risk, liquidity IRS risk, and SPAN risk throughout the optimization process.  

Report Name and Location is: (Optimizer output folder) MarginSummaryYYYYMMDD.csv

 

Name Description

PbAccount

Performance Bond Account

VaR for OTC IRS only

IM for all OTC IRS without any futures and/or options via IRS Margin Methodology

Span for All Futures

IM for all futures/options in the portfolio margined via SPAN

Total IM without PM

Sum of prior two line items

VaR Before Netting

IM for IRS and futures/options in the PM account on the positions.csv file

Span Before Netting

IM for residual futures/options in the SEG Account on the positions.csv file

Total IM before nettingSum of prior two line items
VAR Pre OptimizationIM for IRS and futures/options in the PM account after netting is run when enabled
Span Pre OptimizationIM for residual futures/options in the SEG Account after netting is run when enabled

Total IM Pre Optimization

Sum of prior two line items
VaR After OptimizationIM for IRS and futures/options post Optimization
Span After OptimizationIM for futures/options in SEG post Optimization

Total IM After Optimization

Sum of prior two line items

Positions Input File

The file below provides examples of the necessary format for the positions file. Positions files can be up to 25 fields, all fields additional to the below are considered optional and passed through.

Column NameSizeDescription
PB Account IDUp to 15 Alpha-numericThis is the CME pb account ID that is linked to the F&O account ID of this position.  This ID ties to the pb Account ID displayed in the Delta Ladder file.
SegTMFIDUp to 5 Alpha-numericTMF ID for the SEG account associated with the position and applicable PB Account ID.
PmTMFIDUp to 5 Alpha-numericTMF ID for the PM account associated with the position and applicable PB Account ID.
SEGAccountIDUp to 15 Alpha-numericThis is the SEG account ID holding Futures/Options associated with this position and applicable PB Account ID.  Positions held within this account are NOT included in cross margining.
PMAccountIDUp to 15 Alpha-numericThis is the PM account ID holding Futures/Options associated with this position and applicable PB Account ID.  Positions held within this account are included in cross margining.
Origin1 Alpha ("C" or "H")Denotes the origin of this account: C for customer account or H for house account
AccountType Up to 15 Alpha-numericThis field identifies if this Futures/Options Account ID associated with this position should be included in the Portfolio Margining program. 
SEG - Segregated Customer Futures & Options Account (4d account)
NSEG - Segregated House Futures & Options Account (4d account)
PM - Futures and Options account that will is a part of the Portfolio Margining program (4df account)

* Please note, a PB Account ID can only have at most 1 PM account and 1 SEG account associated with it.
Product CodeUp to 10 (Clearing Currently 6)Span Product Family Code
Product Type3 bytes Alpha-NumericOOF for Option, FUT for Future
Option Expiration Month6Month of Option Expiry (YYYYMM)
Future (Underlying) Expiration Month6Month of Future Expiry (YYYYMM)
Call "C" or Put "P"1 Alpha ("C" or "P")"C" for Call, "P" for Put, Blank for Futures
StrikeUp to 14 digits, Seven Left, Seven RightStrike - In true decimal format
Total LongUp to 15 digits, 2 decimalsTotal Long Positions
Total ShortUp to 15 digits, 2 decimalsTotal Long Positions
Trade Date8YYYYMMDD
SPAN Exchange3The 3-character SPAN Exchange code.  In this case, either CME or CBT.
Netting Eligible 1This field identifies if Netting should be Enabled. "Y" for Yes, "N" for No
* It is assumed that futures and options will be held in the same Seg account.

Message Samples

Transfer Add Message from CME Optimizer to CME

The following message will be sent from the CME Optimizer to CME when initiating a trade Transfer via API: add transfer (TrdTyp=”3”) with original trade date (OrigTrdDt) and Transfer Reason Code (OrdTyp) = “M”:

<FIXML v="5.0" s="20111206">
	<TrdCaptRpt RptID="900000" TrdID="900000" TransTyp="0" RptTyp="0" TrdTyp="3" TrdHandlInst="2" OrigTrdDt="2019-06-17" LastQty="1000" LastPx="145.1875" TrdDt="2019-06-25" MLegRptTyp="1" TxnTm="2019-06-25T00:00:57.1847503Z" MsgEvtSrc="API">
		<Hdr SID="973" TID="CME" SSub="CBT" TSub="CBT" Snt="2019-06-25T00:00:00"/>
		<Instrmt ID="17" CFI="FXXXXX" SecTyp="FUT" MMY="201912" Exch="CBT"/>
		<RptSide Side="2" ClOrdID="PM001" InptDev="API" CustCpcty="4" SesID="RTH" SesSub="X" OrdTyp="M">
			<Pty ID="CBT" R="22"/>
			<Pty ID="CME" R="21"/>
			<Pty ID="973" R="1"/>
			<Pty ID="HANSON" R="24">
				<Sub ID="1" Typ="26"/>
			</Pty>
			<Pty ID="1Z9" R="17"/>
			<Pty ID="OPTMZ5" R="48">
				<Sub ID="1" Typ="26"/>
				<Sub ID="4" Typ="4000"/>
			</Pty>
		</RptSide>
	</TrdCaptRpt>
</FIXML>


CME Acknowledgment of CME Optimizer Add Transfer Message

The following acknowledge message is sent from CME back to Clearing Member Firm, with TransTyp = “0”:

<FIXML>
    <TrdCaptRptAck RptID="135BCD40D95AP0001C1B6132021144" TransTyp="0" RptTyp="0" TrdTyp="3" TrnsfrRsn="M" MtchID="135BCD40D95AP0001C1B4" ExecID="00000000000000000045" PxTyp="2" TrdDt="2019-06-25" BizDt="2019-06-25" MLegRptTyp="1" MtchStat="1" MsgEvtSrc="CMESys" RptRefID="0012217" TrdRptStat="0" TrdID="103650" TrdID2="135BCD40D95AP0001C1B6" TrdHandlInst="2" OrigTrdDt="2019-06-17" LastQty="75" LastPx="98.82000000" TxnTm="2019-06-25T13:20:21-06:00">
        <Hdr Snt="2019-06-25T13:20:21-06:00" SID="CME" TID="999" SSub="CME" TSub="CME"/>
        <Instrmt Sym="GEZ0" ID="ED" CFI="FFDCSO" SecTyp="FUT" Src="H" MMY="20201200" MatDt="2020-12-14" Mult="2500" Exch="CME" PxQteCcy="USD"/>
        <RptSide Side="1" ClOrdID="PM001" InptSrc="MQM" InptDev="API" CustCpcty="2" OrdTyp="M" SesID="RTH" SesSub="X">
            <Pty ID="CME" R="21"/>
            <Pty ID="CME" R="22"/>
            <Pty ID="999" R="1"/>
            <Pty ID="IRS_XMGRN" R="24">
                <Sub ID="1" Typ="26"/>
            </Pty>
            <Pty ID="909" R="17"/>
            <Pty ID="999" R="4"/>
            <Pty ID="IRS_XMGRN" R="38">
                <Sub ID="1" Typ="26"/>
            </Pty>
        </RptSide>
    </TrdCaptRptAck>
</FIXML>

Reporting

CME Group will publish all reports as usual. Additionally, CME Group will publish a Variation Summary Report which will list the Interest Rate Futures and Options Variation Margin and OTC IRS Variation Margin cash flows in IRS Position Account from Portfolio Margining process and CME will publish an OTC Margin Report, this Initial Margin Report will list IRS margin requirements by PB account, as well as equivalent currency requirements. This report offers the same information as the IRSMR3 report – only in a slightly different format. Initial margin is passed as a combined number (you cannot break out what portion is futures/options and what portion is swaps).

The following reports may be used for reconciliation of each position maintained by the Clearing House for the Clearing:

IRS Trade Register – CSV

Describes all cleared interest rate swap and swaption trade economics and valuation details by position account. This report does NOT include futures and options positions used to offset IRS activity.

Report Name and Location is SFTP (Firm Directory) IRSTR_FFF_ yyyymmdd_EOD.csv (production environment) IRSTR_FFF_yyyymmdd_EOD.nr.csv (test environment)

8:00pm EST

IRS MR3 Report

OTC IRS Margin Requirements.

The MR3 report provides the initial margin and maintenance margin requirement for each house and customer performance bond account. The MR3 differentiates the initial and maintenance margins into various traded currencies.

IRSMR3 is published in two nightly versions:

  1. Early IRSMR3
    1. Firms who have no options in OTC accounts can use this file
  2. Final IRSMR3 File 
    1. New (as of December 202): final IRSMR3 file, capturing EOD E&A activity
    2. Firms with options in OTC accounts should use this version of the file

Report Name and Location is SFTP (Firm Directory)

  • Early: IRSMR3_FFF_YYYYMMDD.csv (production environment) IRSMR3_FFF_YYYYMMDD.nr.csv (test environment)
  • Final: IRSMR3_FINAL_FFF_YYYYMMDD.csv (production environment) IRSMR3_FINAL_FFF_YYYYMMDD.nr.csv (test environment)

Early: 10:00pm

EST


EOD: 11:00 EST

Portfolio Margin Futures/Options Trade Register Files

Two reports display portfolio margin futures and options residing in OTC cross-margin accounts:

  1. Report Name and Location is SFTP (Firm Directory) FIXML_FFF_CME/CBT_EOD-yyyymmdd.xml (production environment)
    1. This report displays all futures and options trades and positions
    2. Note the FIXML trade register is set up by trading member firm ID. Please reach out if planning to use this report to set up the portfolio margin TMF report.
  2. Report Name and Location is SFTP (Firm Directory) POS542CSV_yyyymmdd_EOD_CME_FFF.csv (production environment)
    1. This report displays all futures and options within portfolio margin accounts and does not include positions in futures segregated accounts.

12:00am

EST

Variation Summary Report EOD

To reconcile the net banked amount at CME, aggregate the Trade Report cash flows with the Variation Summary Report (IRSXV) cash flows.

IR futures/options VM and OTC IRS VM cash flows in IRS position account from Portfolio Margining process at End of Day.

Report Name and Location is SFTP (Firm Directory) IRSXV_FFF_YYYYMMDD.csv (production environment) IRSXV_FFF_YYYYMMDD.nr.csv (test environment)

10:00pm

EST

Variation Summary Report ITD

The IRSXV ITD Report will be the exact same format as the IRSXV EOD Report, however it will be produced at Intraday.

IR futures/options VM and OTC IRS VM cash flows in IRS position account from Portfolio Margining process at Intraday.

Report Name and Location is SFTP (Firm Directory) IRSXV_ITD_FFF_YYYYMMDD.csv (production environment) IRSXV_ITD_FFF_YYYYMMDD.nr.csv (test environment)
TBD

Clearing Member Published Reports

Clearing

CME will continue to receive the PCS as usual. The overall requirement of properly reporting customers’ open interest to CME via PCS does not change. PCS submitted in the futures position account should not reflect any positions held in the PM PA account. The PM PA account requires a separate PCS file if a firm should not elect to use the default netting of all positions in the PM account.

All Customer Portfolio Margin Positions Accounts which are requested to be set up for this program will be set up with a netting maximization requirement. FOR EXAMPLE:

  •  A customer with 100 x 0 in their Portfolio Margin Position Account transfers in 30 sells
  • The Position Account automatically reduces to 70 x 0 at the end of the day
  •  No PCS required for the Portfolio Margin Position Accounts

The PCS for the regular Futures Position Accounts will need to be manually amended to only reflect the open interest of the remaining Futures positions that were not moved into the Portfolio Margining Position Accounts. FOR EXAMPLE:

  • A customer with 100 x 0 in the regular Futures Position Account transfers 30 positions to the Portfolio Margin Position Account
  •  PCS for the regular Futures Position Account must reflect a Final Long of 70 so as to not overstate open interest

Clearing Member Back Office Reporting & Bookkeeping

Customer Portfolio Margining will impact bookkeeping practices for Clearing Member Firms. Although CME is aware that there are multiple manners in which to handle bookkeeping impacts, CME offers the below options as two examples of guidance in handling these implications.

The following firm bookkeeping models are guidance for firms to internally apply as they adjust trades for Client Portfolio Margining. The following firm bookkeeping models are NOT related to the CME account setup requirements and/or process.

Option 1: One new account created:

  • Each transfer will have two sides (the buy and the sell)
  • In this case, the buy is booked to the 4df account to move 10,000 long positions
  •  The sell is booked to the existing 4d account of the client

 

Option 2: Two new accounts created plus one related master account created:

  • Each transfer will have two sides (the buy and the sell)
  • In this case, the buy is booked to the 4df account to move 10,000 long positions
  • The sell is booked to a new 4d account for the client
  • The firm will know books are balanced if the sum of the positions in these two accounts adds up to zero


Deliveries

Treasury Futures which physically deliver carry specific reporting requirements.

When a firm effects a transfer of Treasury futures from its Base Futures Account to its IRS Portfolio Margin Futures Account (or vice versa), the firm must retain the original trade date(s) of the transferred Treasury futures, irrespective of the date of transfer, in the firm’s Long Date File.

Firm Implications

  • If a firm does not plan taking their Treasury Futures position to delivery, keeping track of their Original Trade Date is irrelevant.
  • If a firm does plan on or does not know whether they will be taking their Treasury Futures position through to delivery they must keep track of the Original Trade Date (though that does not necessarily mean the Original Trade Date must be on the transfer).

Additional Delivery-related Points

  • CME is agnostic as to the Transfer Date on transfers that occur for portfolio margining.
  • CME is agnostic as to the Price on the transfers that occur for portfolio margining (though prior day settle is encouraged as it reduces and meaningless pass of Variation Margin between the same firm).

Position Movement During Delivery Period Example

Delivery PeriodDateAction

First Notice Date

05/27

CME suggests clearing firms set exclusion period to begin in Optimizer configuration.json file - see more details about using this file in the Optimizer User Guide

First Intent Date

05/30

Last possible day to move June contracts back to SEG account with no risk of getting assigned in your portfolio margining firm.

Last Trade Date

06/28

Last day firms should be including June contracts in their position file.

Day after Last Trade Date

07/01

Front month is now the September contract. CME suggests clearing firms set exclusion period to end in the Optimizer's configuration.json file.

Firms must exclude June contracts from their position file.

Option Expiration and Exercise and Assignment

American-style options can be randomly assigned, including in an OTC swaps accounts, prior to the option expiration date. 

  • Options in portfolio margining are settled in the existing cleared OTC account structure used for futures in portfolio margining.
  • Exercising long options in portfolio margin accounts:
    • Clearing firms must demonstrate the ability to appropriately manage changes to books and records occurring as a result of exercised long options for a client proprietary account participating in portfolio margining.
    • If following Account structure 1 above, Clearing firms are expected to exercise long positions in the SEG futures account until the account has insufficient quantity, then continue exercising any excess quantity in the sequestered OTC swaps account.
    • If following account structure 2 above, Clearing firms are expected to exercise long positions in the SEG futures account as it should always have sufficient quantity since it is based on all traded positions.
  • Random assignment of short options:
    • CME’s random assignment process takes into account cleared OTC accounts in addition to cleared segregated accounts - the process is randomized across all accounts containing options, regardless of account type.
    • Short options in an OTC accounts during the EOD assignment process at CME can be flagged for random assignment.
      • Clearing firms must process future trades booked as a result of random assignment in the OTC account.
      • Clearing firms can choose to utilize Optimizer’s exclusion logics, described in the Optimizer User Guide here, to mitigate the risk of option expiration in OTC accounts.
  • For more details and examples related to exercise and assignment of listed options in portfolio margining, please contact cme.core@cmegroup.com

Cash Flows

Initial Margin and Variation Margin requirements are calculated and banked on a portfolio basis for portfolios containing both IRS and Interest Rate futures/options at the end of each day. A report will break out the Variation Margin cash flow between VM associated with commingled futures/options and IRS positions. Cash flows for IR futures/options not commingled with IRS positions will not change.

For listed options in portfolio margining, Available Net Option Value (ANOV) will be settled in OTC cleared accounts. Similar to the existing behavior in segregated futures accounts, Available Net Option Value settled in OTC accounts can offset market risk, capped at the total Risk Maintenance Requirement using this formula:

  • If Risk Maintenance Requirement (RRM) is > or = total Net Option Value, then Total Requirement = RRM – NOV.
  • If Risk Maintenance Requirement (RRM) < total Net Option Value, then Total Requirement = 0 due to NOV capping.
  • Available Net Option Value (ANOV) is therefore the applied net option value
    • For example, if an account’s computed risk factors are:
      • RRM = $1,000,000
      • NOV = $1,200,000
      • Then total requirement = $0, ANOV was capped to $1,000,000

More general details about Net Option Value can be found here: A Primer on Margining Styles of Options

At Intraday, for commingled IR futures/options, VM gains will be kept in clearing (not paid out) and VM losses must be paid to the Clearing House.

Variation Margin Cash Flow Example
Account (in which the trade was executed)SEG Account
Position50L
Settlement Price$1.00 change, day over day
Day 1: Optimizer says move all 50L to PM account
SEG AccountPM Account
VM of $50 hits accountNo impact
Day 2: No Activity
SEG AccountPM Account
No impactVM of $50 hits account (netted against swaps)
Day 3: Optimizer says move all 50 back to Seg Account
SEG AccoountPM Account
No ImpactVM of $50 hits account (netted against swaps)
Day 4: No activity
SEG AccountPM Account
VM of $50 hits accountNo impact

Intraday (ITD) Process

Futures and options products in the Portfolio Margining Futures Position Account will calculate VM at Intraday.

For IR futures and options in the Portfolio Margining account at ITD, the variation margin process is as follows:

  • If the Clearing Member owes money, CME shall collect the money.
  • If the Clearing Member is owed money, CME shall hold on to the money.
  • The EOD process will follow current pay and collect (when EOD Mark to Market process takes place).
  • Please also reference the LSOC compliance document available on the CME Group website here.

Variation Summary Report

Variation Summary Report for reconciliation, shows Interest Rate futures and options VM and OTC IRS VM cash flows in the IRS position account from Portfolio Margining process including all trades/positions from the Portfolio Margining account:

File Name = IRSXV_(FIRMID)_YYYYMMDD.csv

Format = CSV

Location = Firm Directory on SFTP site

Timing = 9:00 PM EST

ColumnColumn HeaderDescriptionAttribute Type

 A

 BusDate

Business Date

Date

 B

 CO

Clearing Organization

Alphanumeric

 C

 CMF

Clearing Member Firm ID

Alphanumeric

 D

 PA

Position Account ID

Alphanumeric

 E

 Seg

Segregation Type (CUST or HOUS)

Alphanumeric

 F

 PA_Name

Position Account Name

Alphanumeric

 G

 PBA

Margin Account ID

Alphanumeric

 H

 SA

Settlement Account ID

Alphanumeric

 I

 Fseg

Funds Segregation Type

Alphanumeric

 J

 Level

Always “B” for Breakout by Currency

Alphanumeric

 K

 Ccy

Currency

Alphanumeric

 L

 SV_Fut

Settlement Variation – Futures Account

Numeric

 M

 SV_Swap

Settlement Variation – Swaps Account

Numeric

 N

 SV_Total

Settlement Variation – Total

Numeric

OValue_DateValue date of the associated funds movementDate


Portfolio Margin Savings Calculation - CME CORE

CME CORE is an interactive margin calculator that allows customer to input positions via portfolio upload or manual trade entry and download Margin Results. CME CORE calculates margin savings and capital efficiencies within the Customer portfolio Margining Offering. CORE has the ability to show both naked swap amounts (using 5 day HVaR), naked futures and options amounts (using SPAN) and then a combined savings.

A CME Group Login is required to access CME CORE. If you need a CME Group Login, please follow these steps or and view CME Group Login Help for more details:

  1. Go to the CME CORE login screen. (https://cmecore.cmegroup.com/)
  2. Click on the "Need to Register" link and provide the required information.
  3. Receive your CME Group Login.
  4. Email cme.core@cmegroup.com to request entitlements to CME CORE. You need only provide:
  • Your user ID
  • The asset class for which you want interactive margin calculations

Advisories

For further information please also refer to the relevant CME Group advisories:

Launch of CME Optimizer & IRS/Futures Portfolio Margin for Customers Update

Deliveries Plus Changes and New Functionality

Rules

Please refer to the CME Rulebook as follows for rules regarding Large Trader reporting and Transfers.

CBOT Rulebook, See Chapter 8, sections below:

Rule 853. TRANSFERS OF TRADES AND CUSTOMER ACCOUNTS

Rule 854. CONCURRENT LONG AND SHORT POSITIONS

CME Rulebook, See Chapter 5, section below:

Rule 561. REPORTS OF LARGE POSITIONS