CME Clearing Performance Bond Practices

  • 16 Jul 2020
  • By CME Group
  • Topics: Clearing

What is performance bond?

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.

Performance bond coverage

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:

  • One-day for futures and options on futures;
  • One-day for swaps on agricultural commodities, energy commodities, and metals; and
  • Five-days for all other swaps (e.g., interest rate swaps).

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
Q4 2018 Base 7 21,195.00    99.97% 0.05242%
IRS 0 2,508.00  100.00% 0.00000%
Q1 2019 Base 0 6,761.00  100.00% 0.00000%
IRS 0 2,394.00  100.00% 0.00000%
Q2 2019 Base 0 7,133.00  100.00% 0.00000%
IRS 0 2,470.00  100.00% 0.00000%
Q3 2019 Base 2 28,510.00    99.99% 0.10218%
IRS 0 3,553.00  100.00% 0.00000%

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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