CME Clearing now processes numerous futures products with associated "daily cash adjustments", including the CBOT® Dow AIG Excess Return^SM Futures, CME's Goldman Sachs Commodity Index (GSCI)® Excess Return Futures, and several CME TRAKRS^SM Futures. 

In the clearing system, except for the addition of this special cash flow, these futures behave normally:  they are marked-to-market twice daily, the associated cash flow ("settlement variation") is banked, and performance bond requirements are calculated normally using SPAN®.

For customer accounts on clearing firm books, for these products, two different categories of customers may be defined.  For the sake of discussion, let's call these "normal" and "special":

• For normal customers, these products behave like normal futures, except with the addition of the special cash flow.  They are marked-to-market normally, and the resulting variation margin, together with the amount of the special cash flow, is included in open trade equity.  Performance bond requirements are calculated using normal SPAN®.
  
• For special customers, the products behave differently.  There is no associated cash flow.  Also, although mark-to-market amounts are calculated normally and included in open trade equity, they are considered "locked-up", and will not result in any collateral calls or releases.  In addition, performance bond requirements are calculated using a special feature of SPAN called the "value maintenance method", which fixes the margin requirement at trade time as a specified percentage of the trade value, although it may be subsequently reset if the market price of the contract moves by more than a specified amount.

CBOT's Dow AIG Excess Return futures are an example of a contract in which all customers are treated as normal customers.  CME's TRAKRS futures and GSCI Excess Return futures are examples in which there are both normal and special customers.  For TRAKRS, for example, normal customers are called "QIB's" (Qualified Institutional Buyers), and special customers are "non-QIB's."

Going forward, more contracts with these features are expected to be launched.  This advisory highlights the common aspects of processing for all such contracts.  Please note that these are generic features of the CME clearing system, not tied to any one product.

For the full text of this advisory...