| As you are aware, the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), and the Board of Trade Clearing Corporation (BOTCC) adopted a risk based capital requirement at the clearing organization level effective January 1, 1998. This coordinated risk based requirement is based upon customer and noncus1tomer risk margin/performance bond requirements which are reported on the supplemental information sheet of your 1-FR/FOCUS. With the new requirement, the CME and CBOT have begun reviewing the customer and noncustomer risk margin/performance bond requirements submitted, including a review of the reports used to generate the amounts. Our work to date has identified several common errors. These errors are identified below to assist in your review of your risk margin/performance bond requirements. Common Errors of Customer and Noncustomer Risk Margin/Performance Bond Reporting - Positions margined using a non-SPAN margining system were excluded.
- Positions of foreign domiciled customers trading foreign markets were excluded.
- Margin/performance bond requirements of certain omnibus accounts were excluded.
- Related accounts were improperly included. For example, both the master account and the individual accounts were included in the requirements computation.
- Risk margin/performance bond requirements were taken from equity system totals (reflecting risk margin/performance bond adjusted for option value) rather than a risk based capital report (reflecting risk margin).
Please review the reports generating your customer and noncustomer risk margin/performance bond requirements. The CME and CBOT will be continuously reviewing these computations and performing follow-up work as necessary. If you have any questions, please contact the CME Audit Department at (312) 930-3230 or the CBOT Office of Investigations and Audits at (312) 435-3654. |
