Execution of a futures or option order can take place in multiple venues: electronically through CME Globex, through open outcry trading on the trading floor, or over the counter through CME ClearPort.
The first stage after a trade has been executed is trade processing. Trade processing is a series of steps that each trade executed on the exchange must follow and complete daily. This includes, but is not limited to, trade matching, valuation of the trade and margin verification.
After trade processing is complete, the trade is passed onto the core clearing system for post-trade processing. This includes trade transfers and allocations, where clients can allocate trades between Futures Commission Merchants, with whom they have a relationship.
After a trade has completed post-trade processing, it is then subject to CME Clearing’s comprehensive and prudent risk management standards. Under the umbrella of risk management, the trade is evaluated for performance bond requirements, which are good faith deposits designed to mitigate failure to perform on open positions with coverage of at least 99% of possible market moves. Trades are also subject to mark-to-market calculations, which removes debt by settling profits and losses rather than allowing outstanding obligations to accumulate in the system. In addition to daily settlement variation and recalculation of performance bond, CME Clearing has established financial safeguards waterfalls for each major asset class in which it provides a clearing service. This allows CME Clearing to maintain stability with ever-changing risk profiles of open portfolios.
Finally, the trade is monitored by a dynamic set of risk management functions supported by the clearing system. These functions include intra-day monitoring and processing of settlement variation, the movement of gains and losses, the management of collateral to guarantee the performance of outsanding exposures, and facilitatation of banking and/or custody arrangements for monies used to meet clearing member obligations to CME Clearing.
In general, the timeline at CME Clearing runs on the following schedule.
Markets open at 5 p.m. Central Time (CT) on Sunday and close at 4 p.m. CT on Monday. The intra-day clearing cycle for exchange-traded products typically begins at 11:00 a.m. CT and is completed around 12 p.m. CT, during which time banking reports are produced and sent to clearing firms.
The end-of-day clearing cycle begins at 6 p.m., at which time all trades submitted for clearing are extracted. When the end-of-day settlemet cycle begins, all final margin requirements are calculated and exchanged between CME Clearing and clearing members. CME Globex trading for the next business day opens one hour before the settlement cycle begins at 5 p.m. CT.
This clearing cycle will repeat for each business day until 4 p.m. on Friday of each week.
To assist with the calculation of look-ahead risk on outstanding portfolios, CME Clearing provides tools to allow clearing members and customers to calculate margin requirements on existing and hypothetical portfolios, both through our online system, CME Core, or through deployable software supporting our margin models like CME SPAN.
In addition to trade processing, CME Clearing is responsible for the timely transfer of performance bond and/or settlement funds between the clearing house, clearing firms, settlement banks or other parties involved in the transaction. CME Clearing is also responsible for the management of clearing member firm collateral.
Additionally, CME Clearing is responsible for facilitating all aspects of of the physical delivery process for exchange-traded commodities, such as agricultural commodities.
Additional information on calculation tools, clearing services and systems are available on cmegroup.com.