Clearing House Advisory Notice
To | Chief Financial Officers Back Office Managers Margin Managers
From | Clearing House Division
Subject | Implementation of the Concentration Margining Program
Effective Date | 12/15/00
Notice Number | 00-89
The CME will implement the Concentration Margining program on January 19, 200 1. The Board of Directors approved this concept in June, which will allow the Clearing House to charge additional performance bond requirements when firms� potential market exposures become large relative to the financial resources available to support those exposures. Additionally, we will utilize net, rather than gross positions, when calculating concentration margins. In anticipation of the Concentration Margining program implementation, the CME will provide test results to each clearing member based on actual positions so that firms can view the impact of this program. Those test results will be available on every Monday morning until implementation, beginning on Monday, December 18, 2000, and will be based off of the previous Friday�s end of day positions. The test results will be available on Infopac under Report ID CST580TEST and Report Name �TEST REPORTS FOR CONCENTRATION.� Beginning on January 19, 2001, at the RTH cycle, the Concentration Margins will be able to be viewed on all the normal SPAN Recap ledgers. Also, the CME will soon provide additional information under Report ID CPBRPT99C and Report Name �CONCENTRATION STRESS TEST REPORTS� that will show the results from the stress tests described below. All users that currently access their SPAN reports via Infopac will be given access to this test report. If you do not currently access the SPAN reports via Infopac, please e-mail jperun@cme.com and request Infopac Access to the CST580TEST and CPBRPT99C reports. Below is a review of how Concentration Margins will be applied: On a daily basis, all clearing member portfolios will be subjected to a stress test of equity and interest rate positions of an amount equal to at least 150% of the current performance bond requirements. If a clearing member�s potential losses under the stress testing scenario (less any offsetting profits from its house origin positions if applicable) exceed the clearing member�s excess adjusted net capital, the clearing member will be subject to a 25% expansion in its performance bond requirements in the product category on its net positions. If a clearing member�s potential losses under the stress testing scenario (less any offsetting profits from its house origin positions, if applicable) exceed $500 million, the clearing member will be subject to a 25% expansion in its performance bond requirements in the product category on its net positions. In cases where a clearing member that would have been subject to an expanded performance bond requirement under the two conditions described above has demonstrated liquidity in excess of the potential losses it would suffer under the stress-testing scenario, the expanded performance bond call will be waived. Demonstrated liquidity will be measured using the five largest settlement variation calls the clearing member has met over the past 12 months. Excess performance bond collateral on deposit will be used to satisfy the expanded performance bond requirement. If a clearing member has insufficient collateral on deposit to fully satisfy the expanded performance bond requirement, the Clearing House will issue an additional performance bond call. The collateral rules that apply to reserve performance bond requirements will apply to the expanded performance bond requirements. This means that clearing members may use stock or letters of credit to fully satisfy the expanded performance bond requirements. If you have any questions regarding this program, please contact Mr. Dale Michaels, Associate Director, Risk Management, at (312) 930-3062. If you have any questions regarding receiving the test reports, please contact Karen McCoy, Client Management at (312) 930-4524.