CME Clearing maintains an account organizational structure that clearing firms use when establishing account structures. CME Clearing allows clearing firms to establish their trading accounts in flexible ways that promote operational efficiency. Oftentimes a clearing firm’s account structure mimics that of CME Clearing.
A clearing firm may have one or more house accounts, which are used to manage that firm’s proprietary trading activity. Pursuant to CFTC regulations, all customer position and performance bond accounts are segregated from the house accounts of clearing members and their affilates. CME Clearing’s Financial and Regulatory Surveillance (FRS) department operates a financial surveillance program to monitor compliance with customer segregation requirements.
Take a closer look at the account structure setup and how these different accounts relate to the functions performed when a trade is executed and cleared.
The position account contains your position details. Futures mark-to-market and options premium are calculated at the position account level by CME Clearing. Each of the clearing firm’s position accounts must be associated with a performance bond account and a settlement account.
Performance bond accounts hold performance bonds and are used for the purpose of calculating performance bond requirements. Performance bond, deposits, also known as initial margin, are held at CME Clearing to ensure that clearing members have sufficient funds to meet obligations. Performance bond calculations vary by asset class and fluctuatate with market volatility.
Settlement accounts hold funds used during the settlement cycle. Unless specified otherwise in the contract terms, CME Clearing determines settlement prices. Settlement pricing data can be derived from cleared prices, pricing data from market participants, the settlement prices of related products and any other pricing data from sources deemed reliable by CME Clearing. Similar to position and performance bond, settlement customer funds are always segregated from their clearing firm’s settlement house funds.
Collateral supplied by the clearing firm to CME Clearing is held in the asset account. Clearing firms can access their asset accounts through a clearing application, where they are able to review assets on deposit and authorize deposits and withdrawals.
Largely, the four account types as mentioned, position, performance bond, settlement and asset accounts, coincide with the account organizational structure within CME Clearing. It is pertinent that you have an understanding of the required account structure including your role as it relates to clearing and risk management at CME Clearing.