Performance bond, often referred to as initial margin, is a good-faith deposit to guarantee a market participant’s performance against potential future losses on open positions. CME Clearing recalculates performance bond requirements at least once daily for clearing member and customer portfolios, but twice daily in most cases (e.g., exchange-traded derivatives).
Clearing members are required to collect minimum performance bond amounts from their customers and pass through at least those minimum amounts to CME Clearing. Performance bond requirements vary by product and portfolio, depending on the risk. Performance bond requirements also change over time based on evolving market conditions and volatility levels. CME Clearing endeavors to make preemptive incremental changes to its performance bond requirements in response to volatility, where possible.
CME Clearing’s risk-based performance bond methodologies are designed to cover 99% of price moves for a product or portfolio of products over a minimum of:
Where appropriate, based on a given product, CME Clearing may calibrate performance bond requirements to cover a longer period of risk. CME Clearing’s performance bond coverage levels exceeded the target of 99% for all four quarters in 2018.
|Clearing service||Number of breaches||Number of observations||Achieved coverage||Average uncovered exposure as a % of total performance bond held|
Data points on CME Clearing’s performance bond coverage are disclosed under Disclosure 6.5 of the CME Clearing Quantitative PFMI Disclosure document.1
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