Topics in this issue include:

      Critical System Updates

·         FTP Connectivity Conversion Deadline-April 2, 2012

·         UPDATED: FECPlus Testing and Production Deployment Schedule

·         Minimum Price Fluctuation Reduction for Natural Gas Products

·         Risk Management Interface (RMI)

·         Change to ClearPort Exposure Limit Calculation

      Deliveries

·         Updated List of Live Cattle Stockyards and Slaughter Plants

·         CME Group Delivery Dates for April 2012

      Events & Announcements

·         Good Friday Holiday Clearing Schedule-Friday, April 6, 2012

·         CME Clearing Collateral Diversification Requirements

·         New Reporting Requirements Regarding Gross Customer Margining

·         Verbal 17f-6 No-Action Assurance Issued by SEC Division of Investment Management for Registered Investment Companies for Interest Rate Swaps and Credit Default Swaps

·         FIA “Rate Identifier” Indicator Coming Soon

·         Review of Collateral Haircuts Advisory

·         REVISED:  Initial Requirements for Non-Hedge Cleared Swaps Customers

·         SFTP Connectivity Conversion Deadline Extension-June 1, 2012

·         Japanese Government Bonds

·         Portfolio Margining for Eris Exchange and CME Interest Rate Futures to Begin on Monday, April 16, 2012

·         NEW PRODUCT:  Wheat Calendar Spread Option

·         NEW PRODUCT:  Soybean Calendar Spread Option

FTP Connectivity Conversion Deadline-April 2, 2012

As many of you are aware, we successfully completed Phase I conversion of our FTP and SFTP (secured FTP) system which targeted all firms using our legacy Internet connection architecture.

Next, we will address the conversion of all clearing member firm WAN (Leased Line) connections from the legacy to the new CME infrastructure.

Clearing firms using the Legacy environment will be required to complete their conversion to the new server and, if necessary, convert from FTP to SFTP by April 2^nd, 2012.

The Legacy WAN environment includes the following addresses.

• FTP:                             xxx.xxx.xxx.45
• SFTP:                           xxx.xxx.xxx.46

The new environment is in place and is reachable at the following addresses using SFTP: 

• Production:                   xxx.xxx.xx.33

• Disaster Recovery:        xxx.xxx.xx.33

Please call Clearing Services at the number below for the new IP addresses.

We recommend a non-production file name convention be used when sending a test file.

Please be aware, firms that have not converted to the new SFTP IP address by April 2^nd, 2012 will incur a monthly maintenance fee to use the old FTP server. Updated notices will follow to outline fees.

We ask that each clearing member firm and any organization connecting FTP please provide us contact information (name, phone number and email) of the primary and back-up contacts for this conversion effort.  Once firms have tested and converted activity to the new destination, credentials will be removed from the legacy server.

For further information or assistance please contact Clearing Services at (312) 207-2525 or

E-mail SFTPConversion@cmegroup.com

UPDATED: FECPlus Testing and Production Deployment Schedule

In response to requests from the Clearing community, the schedule for FEC+ has been amended.  Below is the deployment schedule for FECPlus for the remainder of the year:

• Testing for the FPL-compliant FIXML 5.0 API for ALL post-trade processing, including give-ups, average-priced give-ups, and cross-exchange allocations, is currently available in New Release. This includes both outbound and inbound messaging capabilities.  FECPlus in New Release will be used to manage all post-trade processing transactions.  The existing FIXML 4.4 API will no longer function for any post-trade processing in New Release.
• Thursday, May 3, 2012: Testing for the migration of ClearPort trades to FECPlus will begin in New Release.  With this change, all ClearPort trades, including CDS and OTCFX, will no longer be posted to existing FEC in New Release. There will be NO API messaging changes for these trades.
• Monday, June 4, 2012: Production launch date for migration of ClearPort trades, including CDS, to FECPlus.
• Monday, June 11, 2012: Production launch date for CMECE for ALL post-trade processing, including give-ups, average-priced give-ups, and cross-exchange allocations using the FPL-compliant FIXML 5.0 API.
• Monday, July 30, 2012: Production launch date for CME/CBT/NYMEX/COMEX for ALL post-trade processing, including give-ups, average-priced give-ups, and cross-exchange allocations using the FPL-compliant FIXML 5.0 API.
• Q3 2012: Electronic Trades will be migrated to FECPlus.  Specific dates will be disseminated as they become available.

If you have any questions or require further information please contact CME Clearing at 312-207-2525 or ccs@cmegroup.com.

Minimum Price Fluctuation Reduction for Natural Gas Products

Effective Sunday, April 15, 2012, for trade date Monday, April 16, 2012, the New York Mercantile Exchange, Inc. (NYMEX or Exchange) will reduce the minimum price fluctuation for the natural gas contracts, listed in the table below, from $0.0025 per MMBtu to $0.0001 per MMBtu.

The Exchange shall provide notification to the Commodity Futures Trading Commission of the amendments to the respective “Products and Fluctuations” rules for these contracts, in order to reflect the reduction of the minimum price fluctuation, within one week following the effective date of this change.

Please refer questions on this subject to:

Risk Management Interface (RMI)

Effective Sunday, April 1, 2012, CME Group will introduce the Risk Management Interface (RMI), an API and GUI that supports granular, pre-trade risk management for clearing firms.

The RMI consists of two components and offers the following services:

• RMI Application Programming Interface (API)
  • Allows Clearing Member Firms to programmatically send instructions to:
    • Block/Unblock order entry by Execution Firm and Account and Exchange and Derivative Type and Side; product designation optional
    • Query current block/unblock instructions
• RMI Graphical User Interface (GUI)
  • A web-based user interface that allows Clearing Firms to:
    • Block/Unblock order entry at the same levels as the API
    • View current blocks

Access to the RMI is limited to Clearing Firms’ certified proprietary and third-party risk management applications.

The Software Developent Kit (Core Functionality and Message Specification) for the RMI API is available online.

The WebHelp that details how to use the RMI GUI is also available online.

RMI API certification via AutoCert+ is mandatory for Clearing Firms who wish to use the API. The Risk Management Interface will be available for testing in New Release on Monday, February 27.

Order cancellation functionality will be supported at a later date; more information will be published in the CME Globex Notices.

Please contact your Global Account Manager at 312 634 8700, in Europe at 44 203 379 3754, or in Asia at 65 6593 5574 for additional information.

Change to ClearPort Exposure Limit Calculation

Effective on April 14^th 2012, CME ClearPort will be shifting from the current RAV (Risk Account Value) algorithm to SPAN (Standard Portfolio Analysis of Risk) as the algorithm used to calculate credit usage for CME ClearPort trades.  SPAN calculates performance bond requirements by analyzing potential market scenarios and is the main margining tool employed by CME Clearing. 

There are some significant differences between the current RAV algorithm and the SPAN algorithm.  In the current RAV calculation, an outright future is charged its maintenance margin rate while an option is calculated by taking the underlying future’s maintenance margin rate and multiplying it by the option’s delta.  Intra-commodity spread rates are available; however, no inter-commodity spread rates are defined in the current RAV calculation.  The SPAN algorithm takes into account both intra-charges and inter-commodity spread rates as well as volatility, time to expiration and a variety of other factors with regard to calculating margins on options.

Due to the differences between the RAV and SPAN algorithm calculations certain CME ClearPort accounts may see changes in their credit usage when the transition is made.  Specifically, accounts trading many inter-commodity spreads will likely see a decline in their credit usage, while accounts trading options, specifically out of the money, will likely see an increase in their credit usage.  It is recommended that clearing firms with accounts such as the above reevaluate their limits considering the items listed above.

For more information on SPAN, please see the following link http://www.cmegroup.com/clearing/risk-management/span-overview.html#works, or reach out to the Clearing Risk Management at 312-648-3888 or at Clearing.Riskmanagement@cmegroup.com.

For information on adjusting credit limits within CME Clearport, please contact the ClearPort facilitations desk at +1 866 246 9639 or +1 212 299 2457 or through email at ClearPort@cmegroup.com.

Deliveries

This link provides the stockyards and slaughter plants that have been approved for deliveries against the CME Group Live Cattle futures contract from February 1, 2012 through January 31, 2013.  Delivery point information and contact numbers are listed for your reference.

If there any questions, please contact the Deliveries Unit at (312) 930-3172.

CME Group Delivery Dates for April 2012

This link provides the relevant delivery dates for March 2012 Chicago Mercantile Exchange Inc., Chicago Board of Trade, New York Mercantile Exchange, Dubai Mercantile Exchange, COMEX and GreenX contracts.

Events & Announcements

Good Friday Holiday Clearing Schedule-Friday, April 6, 2012

Please note that on Good Friday CME Clearing will run a normal clearing processing day for CME, CBOT, NYMEX, COMEX and DME exchanges. 

Below are highlights of Good Friday clearing processes:

Clearing will run and Intraday and End of Day cycles on their regular timeframes for CME, CBOT, NYMEX, COMEX and DME exchanges.

Firms are expected to submit their PCS and Large Trader file at their scheduled times.

Clearing reports and data files will be available.

Good Friday is NOT a valid Delivery processing day. There will be NO Delivery processing for CME, CBOT, NYMEX, COMEX or DME Products.

Firms can submit option exercise and assignments at their normal times for Interest Rates products only.

There will be NO Exercise or Assignment for NYMEX or COMEX products.

Final erosion for the April 5 PJM contract will be completed on Friday, April 6. 

OTC CDS and OTC IRS will trade and clear on Good Friday per normal.

Links to holiday trading schedules:

CME Group Trading Floor

CME Globex

NYMEX Trading Floor

NYMEX ClearPort

On Thursday, April 5, 2012 Clearing and banking schedules remain unchanged.

The April 2012 FX serial options, Weekly EOM options and Live Cattle options will expire on Thursday, April 5, 2012. Clearing will hold a walk-in out-trade session beginning at 3:00 p.m. 

Please be reminded that “contrary instructions” not to exercise in-the-money options or to exercise out-of-the-money options DO NOT APPLY to FX options.

The out-trade reconciliation print times and final reconciliation deadlines will adhere to their normal schedules.  Early/final SPAN and price settlement files will be available at its normal time on Thursday, April 5, 2012.

On Friday, April 6, 2012:

IMPORTANT: The April 2012 Week 1 Mid-curve and 1yr Mid-curve options will expire on Friday, April 6, 2012.  Clearing will hold a call-in out-trade session beginning at Noon. 

For settlement purposes, all CME and CBOT agricultural, Weather and Equity products will be marked to their prior settlement prices from Thursday, April 5, 2012.  Similarly, all NYMEX, COMEX and DME products will be marked to their prior day settlement prices.

Final erosion for the April 5 PJM contract will be completed on Friday, 4/6. 

CME interest rate and currencies, as well as CBOT financials will be settled according to normal settlement procedures.  CME Group reserves the right to re-settle market prices in the event of extreme market movement.

A.         BANKING AND SPAN CYCLES

The intra-day and end-of-day banking and settlement cycles will occur at their normal times on Thursday, April 5, 2012 and Friday, April 6, 2012. 

SVIEF settlement elections for the RTH cycle on Thursday, April 5, 2012, will be set to “zero” for all firms.  SVIEF settlement elections will also be set to “zero” for all firms for the ITD cycle on Friday, April 6, 2012.  Clearing firm SVIEF settlement elections will be automatically reset by the CME Clearing for the RTH settlement cycle on Friday, April 6, 2012.

Settlement variation and performance bond cash call/release amounts resulting from the Thursday, April 5^th RTH settlement cycle will be confirmed by settlement banks by 7:30 a.m. on Friday, April 6, 2012.  Settlement banks will also process cash flows resulting from Thursday’s RTH settlement cycle on Friday, April 6, 2012.

B.         DEPOSITS OF PERFORMANCE BOND COLLATERAL

All schedules remain unchanged for Friday, April 6, 2012.  Moneychanger processing is to be determined.

C.        FOREIGN CURRENCY PERFORMANCE BOND CASH WITHDRAWALS

Due to the holiday’s effects on transaction processing, please note the following value dates on foreign currency performance bond cash withdrawals:

Swiss franc, Australian dollar, New Zealand dollar, Swedish krona, Norwegian krone, & Turkish lira

Trade Date                                                        Value Date

Wednesday, April 4, 2012                                  Thursday, April 5, 2012

Thursday, April 5, 2012                                      Tuesday, April 10, 2012

Friday, April 6, 2012                                           Tuesday, April 10, 2012

Japanese Yen

Trade Date                                                        Value Date

Wednesday, April 4, 2012                                  Thursday, April 5, 2012

Thursday, April 5, 2012                                      Friday, April 6, 2012

Friday, April 6, 2012                                          Monday, April 9, 2012

Canadian dollar & Mexican peso

Trade Date                                                        Value Date

Wednesday, April 4, 2012                                  Wednesday, April 4, 2012

Thursday, April 5, 2012                                      Thursday, April 5, 2012

Friday, April 6, 2012                                          Monday, April 9, 2012

Euro & British Pound

Trade Date                                                        Value Date

Wednesday, April 4, 2012                                  Wednesday, April 4, 2012

Thursday, April 5, 2012                                      Thursday, April 5, 2012

Friday, April 6, 2012                                          Tuesday, April 10, 2012

D.        FOREIGN CURRENCY SETTLEMENT VARIATION

Please note the following value dates for foreign currency settlement variation.

Swiss franc, Australian dollar, New Zealand dollar, Swedish krona, Norwegian krone, & Turkish lira

Business Date                                                      Value Date

Wednesday, April 4, 2012                                  Tuesday, April 10, 2012

Thursday, April 5, 2012                                      Tuesday, April 10, 2012

Friday, April 6, 2012                                          Tuesday, April 10, 2012

Japanese Yen

Business Date                                                   Value Date

Wednesday, April 4, 2012                                  Friday, April 6, 2012     

Thursday, April 5, 2012                                      Monday, April 9, 2012

Friday, April 6, 2012                                          Tuesday, April 10, 2012

Canadian dollar & Mexican peso

Business Date                                                   Value Date

Wednesday, April 4, 2012                                  Thursday, April 5, 2012

Thursday, April 5, 2012                                      Monday, April 9, 2012

Friday, April 6, 2012                                          Monday, April 9, 2012

Euro & British Pound

Business Date                                                   Value Date

Wednesday, April 4, 2012                                  Tuesday, April 10, 2012

Thursday, April 5, 2012                                      Tuesday, April 10, 2012

Friday, April 6, 2012                                          Tuesday, April 10, 2012

E.        A.M. SETTLEMENT CONFIRMATIONS

Your settlement bank will provide an a.m. settlement confirmation for both U.S. dollars and foreign currency transactions on Friday, April 6, 2012 by 7:30 a.m. Chicago time.  Payment for U.S. dollar settlement transactions from RTH cycle of Thursday, April 5, 2012, will also occur on Friday, April 6, 2012.

F.         INTEREST EARNING FACILITY 2 (IEF2)

Please note the following deadlines for IEF2 processing:

Deadlines for Funds                                         4/5/12                           4/6/12

*BlackRock                                                                         2:30 p.m.                               TBD       

Cash Funds:  Prime                                                                           

FedFund

TempCash

TempFund

*Dreyfus                                                                               2:30 p.m.                               TBD

Institutional Cash Advantage                                                             

Treasury & Agency Cash Mgmt

*DWS                                                                                     2:30 p.m.                               TBD       

Gov Cash                                                                             

Money Market Series

Federated                                                                             2:30 p.m.                               TBD

Prime Obligations Fund                    

FFI                                                                                          2:30 p.m.                               TBD       

Select Institutional Fund    

*Goldman Sachs                                                                                2:30 p.m.                               TBD

Fin Square Money Market Fund                                                      

Financial Square Prime Obligations Fund

*HSBC                                                                                   2:30 p.m.                               TBD       

Government                                                                                        

Money Market                                                                     

*JPMorgan                                                                           2:30 p.m.                               TBD

Liquid Assets Money Market                            

Prime Money Market

*Morgan Stanley                                                                 2:30 p.m.                               TBD

Institutional Liquidity Gov Portfolio                                                                                 

Institutional Liquidity Prime Portfolio

RBC                                                                                       2:30 p.m.                               TBD

Prime Money Market

SSgA                                                                                      2:30 p.m.                               TBD

Prime Money Market Portfolio

Wells Fargo                                                                          2:30 p.m.                               TBD       

 Advantage Heritage Money Market Fund                                     

*Same closing time for all funds unless otherwise noted.

**Fund closing times are subject to change.

G.         INTEREST EARNING FACILITY 3; 4; 5 (IEF3/IEF4/IEF5)

IEF3/IEF4/IEF5 processing will follow normal banking schedules for Thursday, April 5^th and will be closing at 9:00a.m.on Friday, April 6^th.

H.        INTER-EXCHANGE PROCESSING

There will be AM and PM Inter-Exchange processing cycles on both Thursday, April 5^th and Friday, April 6^th.  For any related issues, please call (312) 207-2525.

As per the normal review of acceptable collateral and limits, CME Clearing is making the below changes regarding expansion and diversification requirements of collateral composition used by clearing member firms to meet performance bond requirements.

Collateral accepted by CME Clearing will be categorized as noted below. Effective with the RTH cycle on Friday, April 13, 2012, clearing member firms are permitted to meet a maximum of 40% core performance bond requirements with each of Category 2 and Category 3 assets. Also, Category 3 assets have a hard dollar limit of $3 billion per clearing member firm across settlement accounts. Category 1 assets have no requirement type limits. Please refer to the website link below for details on individual asset type limits and product class restrictions.

Clearing member firms that do not use assets in Category 3 should contact the Financial Unit for utilization of assets in Category 2 according to a 40% limit for U.S. Government Agencies, Mortgage Backed Securities, and TLGP, as well as a 40% limit for IEF5 and Letters of Credit.

Additionally, CME Clearing will no longer differentiate utilization of assets for reserve performance bond requirements. The core performance bond requirement will envelope requirements previously categorized as reserve performance bond requirements.  The reserve requirement will be phased out beginning with the RTH on Friday, April 13, 2012. There is no change to CME Clearing’s policy for concentration performance bond requirements. Each clearing member firm will be subject to core performance bond requirements and concentration performance bond requirements as applicable.

Category 1 Assets:

• U.S. Cash

·         U.S. Treasuries

·         IEF2  Money Market Fund Program (limits and diversification requirements within IEF2 program remain in effect)

Category 2 Assets:

·         U.S. Government Agencies

·         Select Mortgage Backed Securities

·         TLGP

·         IEF5 Specialized Cash Program

·         Letters of Credit

Category 3 Assets*:

·         Physical Gold

·         Select U.S. Equities from the S&P 500

·         IEF4 Specialized Collateral Program**

·         Select Foreign Sovereign Debt - Canada, France, Germany, Sweden, UK

Please call CME Clearing for availability of Foreign Cash deposits.  

*Note: The maximum allowable limit for utilization of Category 3 Assets will be the lesser of a) 40 % of core margin requirements and concentration requirements per origin and asset account or b) $3 billion per Clearing Member Firm across all settlement accounts.

**Note: Although CME Clearing is operationally ready to support the new IEF4 collateral acceptance structure, final legal documentation with custodians is pending.

Please refer to the website http://www.cmegroup.com/clearing/financial-and-collateral-management/ for further detail regarding acceptable collateral, haircuts, and limits.  For questions about requirements, please call Risk Management hotline at 312-634-3888 and questions about collateral can be directed to the Financial Unit hotline at 312-207-2594.

This advisory details new reporting requirements for FCMs stemming from certain CFTC regulations going into effect on November 8, 2012.  There are two inter-related functional areas:  Customer Gross Margining (CGM) and LSOC (Legally Segregated, Operationally Commingled).  Customer Gross Margining will apply both to products which are under the futures regulatory regime and to products which are classified as cleared swaps for regulatory purposes.  LSOC will apply only to cleared swaps customer accounts.

Reporting for Customer Gross Margining

Customer Gross Margining will require a significant change in how derivatives clearing organizations (DCOs) calculate performance bond (initial margin) requirements for customer positions.  Specifically, under CFTC Regulation 39.13(g)(8)(i), DCOs will be required to set minimum performance bond levels as the sum of requirements calculated for each individual customer account.

This new method of customer gross margining will require CME Clearing and some other DCOs to switch from the “modified customer gross margining method” which has long been used.  Under the existing method, clearing firms categorize individual customer account positions according to the degree to which risk offsets exist, and report this data twice daily (as the “spreads” information included in the PCS submission used to determine open interest).  The new method will assure that client account risk offsets will be applied only for the benefit of each individual customer account. 

The key operational implication of Customer Gross Margining is that the DCO must know positions for all customers.  For interest rate swaps (IRS) and credit default swaps (CDS), CME Clearing already keeps positions customer by customer.  For certain other cleared swaps and for futures, however, customer positions are held in the clearing system in position accounts which typically commingle positions of many individual customers.  

For customer positions in futures and in these other types of cleared swaps, therefore, clearing firms must submit a datafile, to identify positions by individual customer, so that CME Clearing may calculate margins customer by customer.   The file must be submitted for both the end-of-day settlement cycle and the intraday cycle.  We are referring to this file as the Customer Gross Margin file, or simply the CGM file.

The industry has selected FIXML as a standard format for the CGM file.  The format is highly analogous to the FIXML PCS format widely in use.  The “firm number” in the file should be provided in exactly the same manner as is currently used for PCS submissions, and the account ID will identify the individual customer account.  Where multiple customer accounts have the same owner, the account ID may be provided as the “related master” account which ties all the detail accounts together.

For positions in expiring options:  clearing firms differ in the timing of when they process final exercises and assignments in books.  Clearing firms have a choice, therefore, in how these positions are represented in the CGM file:  either prior to final E&A processing, or after such processing.

Reporting for LSOC

Separately, new Part 22 of the CFTC Regulations, which also goes into effect on November 8, 2012, will implement a form of protection for customer cleared swaps and related collateral that has been referred to as “LSOC” (Legally Segregated, Operationally Commingled).  LSOC poses a number of additional operational requirements for FCM clearing members.  It requires that FCM clearing members report their customer positions in cleared swaps (the “portfolio of rights and obligations”, in the language of the CFTC regulation) to CME Clearing at least once per business day.  Also, if the FCM transmits to CME Clearing any collateral posted by a cleared swaps customer in excess of the amount required by CME Clearing (as permitted under CME rules), the FCM must identify, for each such customer, the value of collateral posted with CME Clearing in addition to the minimum margin requirement.

LSOC Position Reporting

For IRS and CDS, FCM clearing members already do position reporting to CME Clearing in real time, as they submit trades identified by customer and do allocations to individual customers.  But for other cleared swaps, the LSOC “portfolio of rights and obligations” mandate will require that FCM clearing firms submit an end-of-day datafile, identifying cleared swaps positions customer by customer.

CME Clearing will not require a separate datafile to be submitted for this purpose.  Rather, pending regulatory approval, the same CGM datafile of customer positions in these cleared swaps will serve two purposes: (a) for customer gross margining, and (b) for LSOC reporting of the “portfolio of rights and obligations”.

Omnibus accounts and position reporting

For futures, the Customer Gross Margining mandate does not require any changes in how clearing firms handle omnibus accounts.  Firms may continue to hold omnibus accounts on their books, and these may be fully disclosed, partially disclosed, or entirely non-disclosed.

The CGM file format supports all three of these possibilities.  If you provide an omnibus account with no detail subaccounts, this is the “entirely non-disclosed” case.  If you provide an omnibus account with detail accounts, and the sum of the detail account positions is equal to the omnibus account positions, then the omnibus account is fully disclosed.  If you provide detail accounts, but the sum of the positions in detail accounts is less than the positions in the omnibus account, then the omnibus account is partially disclosed.

For Customer Gross Margining, the calculation of the margin requirement for an omnibus account will follow long-established practices.  First, normal portfolio margin requirements are calculated for each disclosed subaccount.  The remaining non-disclosed positions are considered “naked”, and are margined without recognizing any risk offsets.  The total requirement for the omnibus account, then, is the sum of the portfolio requirements for the disclosed subaccounts, and the naked requirements for the non-disclosed positions.

For customer cleared swaps, if a domestic omnibus account is utilized, the new CFTC LSOC regulations will require the non-clearing FCM (i.e., a “Depositing Futures Commission Merchant”) to disclose to the carrying FCM (i.e., a “Collecting Futures Commission Merchant”),  which, in turn, must disclose to the  DCO: (a) “information sufficient to identify” each Cleared Swaps Customer in the domestic omnibus account; and (b) on a daily basis, each Cleared Swaps Customer’s “portfolio of rights and obligations arising from the Cleared Swaps that the Depositing Futures Commission Merchant intermediates for such customer.”   CME Clearing’s own policies require full disclosure of end customer positions for interest-rate swaps and credit default swaps.  Note that other regulatory mandates may affect omnibus accounts and cleared swaps, and that additional information on this subject will be published in the future.

LSOC reporting of additional collateral

As noted above, LSOC requires that clearing firms provide an additional daily report to the DCO for customers with positions in cleared swaps.  For each such customer, pending regulatory approval, the report will identify the value of collateral provided to CME Clearing that is in excess of the collateral meeting the clearing minimum margin requirement.

CME Clearing has worked together with other DCOs to develop a scheme for this reporting that will provide firms with flexibility in how this additional collateral reporting will work.

For each such cleared swaps customer, and for each currency in which margin requirements may be denominated and/or in which collateral may be deposited, the clearing firm may specify the customer’s additional collateral amount in several different ways:

·         The additional collateral amount may be specified either as a percentage of the minimum margin requirement, or as an absolute money amount, or both. 

·         In addition to the capabilities specified in the first bullet, and again for each currency, the clearing firm may specify a collateral floor amount.  If provided, the collateral floor specifies a minimum value for collateral on deposit at the DCO for that customer.

·         Last, as an alternative to the methods described in the first two bullets, the clearing firm may specify a total value of collateral.  The additional collateral value then is determined as the amount by which the total value exceeds the clearing minimum margin requirement.

We are calling this file the LSOC Additional Collateral file, and it must be reported at the end of each clearing business day.  In a manner exactly analogous to that for the FIXML Customer Gross Margin file, we’ve worked together with other DCOs and through the FIA to develop a standard file format using FIXML.

Testing and implementation

CME Clearing’s goal is to provide our clearing firms with maximum time for implementation and testing, and we are working with service providers and the broader industry to develop an overall plan  and schedule.  We intend to begin accepting submissions of the Customer Gross Margin and LSOC Additional Collateral files on a date to be specified, and to require firms to begin submitting them by a date to be specified. 

Daily reports will be provided to firms allowing the comparison of customer-origin requirements calculated the new way versus the existing way.

For more information please contact CME Clearing’s Risk Department at 312-648-3888.

Technical Details

Customer Gross Margining Position Submission via FIXML

<PosMntReq                                                   // position maintenance request message

            ReqID=”123456789”                           // unique record ID

TxnTyp=”4”                                      // position specification

AdjTyp=”tbd”                                               // customer-specific submission

Actn=”1”                                              // new submission

BizDt=”2012-02-06”                            // clearing business date

SetSesID=”EOD”                                // settlement cycle (end-of-day)

TxnTm=”2012-02-06T18:23:49”>       // submission time

<Pty ID=”CME” R=”21”/>                                           // clearing organization

<Pty ID=”111” R=”4”/>                                               // clearing member firm ID

<Pty ID=”NYMEX” R=”22”/>                                      // firm exchange

<Pty ID=”111” R=”1”/>                                               // trade mgmt firm ID

<Pty ID=”ABC12345” R=”24”>                               // customer account

<Sub ID=”1” Typ=”26”/>                             // customer origin

<Sub ID=”ACCT NAME” Typ=”5”/>          // account name

<Sub ID=”H” Typ=”tbd”/>                          // customer account type

<Sub ID=”OMNIACCT” Typ=”tbd”/>        // omnibus account, if relevant

</Pty>

<Instrmt                                                           // contract data

Exch=”NYMEX”

ID=”CL”

SecTyp=”FUT”

MMY=”201203”/>

<Qty Typ=”TQ” Long=”4250” Short=”1243”/>    // long and/or short quantity

</PosMntReq>

Notes on the party specifications:

For CME, the clearing member firm ID (party role 4) is optional, and may be omitted.  OCC and NYPC require it, however.

The account name is as specified on the firm’s books and is optional for the purposes of customer gross margining reporting.

The customer account type indicates whether the account is member, hedge, spec or omnibus.  If not provided, the default is spec.

If the account is a disclosed subaccount of an omnibus account, the “omnibus account” role specifies that omnibus account.  It should not be provided for detail accounts that are not disclosed subaccounts of an omnibus account.

There is variability across the CCP’s in the usage of the “position account” role (role number 38) in FIXML.  (CCP’s use the term “position account” in the same manner, but differ in how the value is assigned.)  For the sake of discussion, we’ll denote this as the “CME usage” and the “ICE usage”.

For CME:

Position account is a value, typically three or four alphanumeric bytes, which clearing firms typically do not know and do not use.  It is provided by CME on output back to the firm, but again, firms typically do not know and do not use it.

Rather, CME derives the position account from the submitted data:  (a) the trade management firm ID; (b) the product; (c) the customer account and origin code. 

Note that the origin is submitted as a sub role of the customer account.

For ICE:

Position account is a single byte, roughly corresponding to the origin and regulatory class of the account and product.  It is a required part of the submission.

For ICE, then, the origin is not provided as a sub role of the customer account.

So the party submission for ICE would look something like this:

<Pty ID=”ICE” R=”21”/>                                             // clearing organization

<Pty ID=”111” R=”4”/>                                               // clearing member firm ID

<Pty ID=”ICE” R=”22”/>                                             // firm exchange

<Pty ID=”111” R=”1”/>                                               // trade mgmt firm ID

<Pty ID=”C” R=”38”>                                              // position account

<Pty ID=”ABC12345” R=”24”>                               // customer account

<Sub ID=”ACCT NAME” Typ=”5”/>          // account name

<Sub ID=”H” Typ=”tbd”                             // customer account type

<Sub ID=”OMNIACCT” Typ=”tbd”/>        // omnibus account, if relevant

</Pty>

Note that position account may be submitted for CME, but if so, it must correspond to the CME usage, not the ICE usage.

Notes on the instrument block

The instrument block usage is standard.  The example above shows how it looks for a future.

Here is an example of how it would look for a vanilla option on future, where underlying need not be specified:

<Instrmt          

Exch=”NYMEX”

ID=”LC”

SecTyp=”OOF”

PutCall=”1”

StrkPx=”32.75”

MMY=”201203”/>

For an option, such as a flexible option, where the underlying must be explicitly enumerated, the “Undly” sub element must be included:

<Instrmt          

Exch=”CME”

ID=”XP”

SecTyp=”OOF”

PutCall=”1”

StrkPx=”32.75”

MMY=”20120327”>

<Undly

Exch=”CME”

ID=”SP”

SecTyp=”FUT”

MMY=”201412”/>

</Instrmt>

The Src attribute is optional, and may be provided, as:  Src=”H”, indicating that the value is the clearing product code.

Again, nothing different from existing usage.

LSOC Collateral Report Submission via FIXML

Customer-specific report:

<CollRpt                                                          // collateral report

            RptID=”123456789”                            // unique record ID

BizDt=”2012-02-06”                            // clearing business date

SetSesID=”EOD”                                // settlement cycle (end-of-day)

TxnTm=”2012-02-06T18::49”             // submission time

Stat=”2“                                             // status = assigned to this customer

ApplTyp=”0”>                                               // customer-specific report type

<Pty ID=”CME” R=”21”/>                               // clearing organization

<Pty ID=”111” R=”4”/>                                               // clearing member firm ID

<Pty ID=”NYMEX” R=”22”/>                          // firm exchange

<Pty ID=”111” R=”1”/>                                               // trade mgmt firm ID

<Pty ID=”ABC12345” R=”24”>                               // customer account

<Sub ID=”1” Typ=”26”/>                 // customer origin

<Sub ID=”ACCT NAME” Typ=”5”/>          // account name

<Sub ID=”H” Typ=”tbd”/>              // customer account type

</Pty>

<CollAmt Typ=”1” Amt=”10000000” Pct=”0.10” Ccy=”USD”/>

<CollAmt Typ=”2” Amt=”30000000” Ccy=”USD”/>

<CollAmt Typ=”1” Amt=”20000000” Pct=”0.20” Ccy=”EUR”/>

<CollAmt Typ=”1” Pct=”0.30” Ccy=”JPY”/>

<CollAmt Typ=”2” Amt=”40000000” Ccy=”CHF”/>

<CollAmt Typ=”3” Amt=”50000000” Ccy=”GBP”/>

</CollRpt>

The report is used to specify:  (a) for a given customer of an FCM, (b) for collateral deposited by the FCM with this DCO, that is (c) denominated in a particular currency, (d) the additional collateral value over and above the minimum margin requirement, that (e) is attributable to this customer.

Any number of Collateral Amount elements may be provided, one per currency and type.

A collateral amount of type 1 means:  the additional collateral amount is specified as either a percentage of the minimum margin requirement denominated in this currrency, or an absolute amount, or both.

A collateral amount of type 2 means:  a floor below which the total value of collateral attributable to that currency may not be allowed to drop.

A collateral amount of type 3 means:  the total value of collateral including the minimum margin requirement and any additional amount.

For the different currencies, these different types of Collateral Amount elements may be mixed and matched by the FCM as desired and appropriate.  For any given currency, however, the message may contain either (a) types 1 or 2 or both, or (b) type 3.

For a given customer and currency, if the report is provided via type 1 and/or 2, then the total value of collateral attributable to that customer and denominated in that currency is calculated as: 

·         Take the minimum margin requirement.

·         Add on the specified percentage of the minimum and the specified absolute amount.

·         Take the larger of this value and the floor.

A report can also be provided as a percentage without specifying a currency, which means that the percentage applies to all currencies in which minimum margin requirements are denominated.

“Minimum margin” in this context means the contribution for that customer of the minimum margin assessed by the DCO to the FCM – not the minimum assessed by the FCM to the customer, which may be higher.

“Value” in this context means haircutted market value as determined by the DCO.

In these examples, the FCM is saying:

·         For USD, add in an additional 10% of the minimum margin, plus another $10M, and in any event don’t let the collateral attributable to this customer go below $30M.

·         For EUR, add in an additional 20% of the minimum margin, plus another 20M.

·         For JPY, add in an additional 30% of the minimum margin.

·         For CHF, don’t let the total value of collateral on deposit go below 40M.

·         For GBP, the total value of collateral on deposit is 50M.

In all cases, the additional collateral attributable to a customer is calculated as the total collateral value less the minimum margin requirement.

The value of collateral attributable to the FCM that is not attributable to any specific customer, then, is equal to the total value of collateral deposited by the FCM for cleared swaps customers, less the sum across customers of total collateral value attributable to each customer.

Verbal 17f-6 No-Action Assurance Issued by SEC Division of Investment Management for Registered Investment Companies for Interest Rate Swaps and Credit Default Swaps

On July 29, 2011, the U.S. Securities and Exchange Commission’s Division of Investment Management (the “Division”) extended temporary no-action assurance that the Division would not recommend enforcement action under Section 17(f) of the Investment Company Act of 1940 against any registered investment company (a “Fund”) if the Fund or its custodian places and maintains cash and/or certain securities in the custody of CME or a CME clearing member for the purpose of meeting CME’s or a clearing member’s margin requirements for certain interest rate swap contracts and credit default swap contracts that are cleared by CME (the “Existing No-Action Letters”). 

The no-action relief provided in the Existing No-Action Letters expired on December 31, 2011.  However, the Division has provided CME with verbal no-action assurance extending that relief, pending further review of CME’s recently-submitted request for further no-action relief. 

Questions regarding this Advisory Notice may be directed to the following individuals:

Mike Kobida (312-454-8961)

Tim Doar (312-930-3162)

Tim Maher (312-930-2730)

In response to requests from clearing firms, and in conjunction with an initiative of the Futures Industry Association (FIA), CME Group is planning to introduce a new field to allow clearing firms to identify on each trade in books, the source of the order which resulted in that trade.  This in turn will allow firms to charge appropriately differentiated rates for orders entered directly by customers versus orders phoned into an order desk, as well as other order distinctions a firm may want to recognize for differentiating customer fees and commissions.

The formal name of the new field is the Execution Source Code. More typically, it is called the Rate Identifier, and it is informally referred to as the Voice/Director Indicator. In summary:

·         The new field may be submitted on Globex orders.

·         Submitted values will be provided to clearing firms on all FIXML trade confirmation messages and allocation messages generated by CME Clearing.  Note that when a trade is given up, the original value submitted with the trade will flow along with the give-up.

·         The values will be carried with the trade into the Give-up Payment System (GPS), where they can be used to drive processing at different rates according to the different values.

FIA has defined the following set of values for the indicator:

A          Phone simple

B          Phone complex

C          FCM-provided screen

D          Other-provided screen

E          Client-provided platform controlled by FCM

F          Client-provided platform direct to exchange

G          FCM API or FIX

H          Algo Engine

J          Price at Execution (price added at Initial order entry, trading, middle office or time of give-up)

W         Desk – Electronic

X          Desk – Pit

Y          Client – Electronic

Z          Client – Pit

An existing FIX attribute called the Customer Order Handling instruction will be used for this purpose.  On iLink messages for CME Globex, this is FIX tag 1031.  In FIXML, the attribute name is CustOrdHdlInst. For example:  CustOrdHdlInst=”W”

The new field is expected to be available in CME’s “New Release” testing environment for CME Globex and clearing in the second quarter of 2012, and available in production also in the second quarter (exact dates will be announced soon).

FIXML message samples are available at:

ftp://ftp.cmegroup.com/pub/span/util/RateIdentifierExamples.zip

For the CME Globex notice, please see:

http://www.cmegroup.com/tools-information/lookups/advisories/electronic-trading/20120116.html#VOI

For more information, please contact CME Clearing at 312-207-2525.

In conjunction with regular review of market volatility to ensure adequate collateral coverage, please find the current acceptable collateral and haircuts for CME Clearing below.  CME Clearing reports the addition of corporate bonds to the acceptable collateral list for Futures and IRS.  Please see the table below for haircut information.  Please see CME Clearing website for more details. http://www.cmegroup.com/clearing/financial-and-collateral-management/

Should you have any questions, please contact the Risk Management department at 312-648-3888 or Financial Management group at 312-207-2594.

REVISED:  Initial Requirements for Non-Hedge Cleared Swaps Customers

Effective Monday May 7, 2012, the CFTC is requiring the use of “initial to maintenance ratios” for non-hedge customer positions in cleared swaps.  These will work in a manner exactly analogous to the way they have long worked for futures.

So for example, suppose a non-hedge (“spec”) customer holds positions at your FCM in CME’s cleared interest-rate swaps, and the minimum initial margin (“performance bond”) requirement for that customer is calculated by CME Clearing as $1,000,000.  Suppose further that the initial to maintenance ratio for IRS is set by CME Clearing as 1.10.

This means that the “maintenance” requirement level that you must assess for the customer is $1,000,000 and the “initial” requirement level is $1,100,000.  (1.10 times the maintenance level.)

On the first day that the non-hedge customer holds CME-cleared IRS positions at your FCM, the higher “initial” requirement level applies.  Thereafter, as long as the customer has enough collateral on deposit to meet the lower “maintenance” requirement, no margin call need be issued.  But if on any particular day the customer’s collateral level falls below the maintenance level, then the higher “initial” requirement level applies, and the customer must deposit collateral to come back up to that higher level.

Exactly as with any other parameter of the margin calculation process, CME Clearing will publish advisory notices detailing what the initial to maintenance ratios will be for each swaps asset class.

Every night, CME Clearing provides FCM’s with datafiles showing the margin requirement levels for each customer’s portfolio.  These datafiles have now been enhanced to show both the maintenance and the initial requirement levels.  For record layouts, please see:

http://www.cmegroup.com/clearing/files/PBRequirementsDatafiles.pdf

Note that the datafiles will show the higher initial requirement level for all accounts, since CME Clearing will not know which accounts are hedge and which are not.  If the account is not hedge, the firm must read and use both the maintenance and initial requirement levels, and apply the normal logic to determine which requirement level applies and whether a deficit exists.  If the account is hedge, then you need to read only the maintenance requirement level.

If you wish to calculate the requirement levels yourself, the initial to maintenance ratios are published in machine-readable form in the various risk parameter files.

In the New Release testing environment, the change will take effect for interest-rate swaps on Wednesday, April 18.  For CDS and FX, the change will be made in New Release on Friday April 6.  And again, as noted above, the change takes effect in production for all swap products on Monday, May 7.

For more information, please contact CME Clearing at 312-648-3888.

Technical Details For CDS and FX:

The initial to maintenance ratio is on the OVPT combined commodity in the end-of-day CDS risk parameter files available on the Firm FTP Server in the pub/cmd/cmf directory.  For example, the file cds.risk.cmf.20120320.s.xml.zip contains the CDS risk parameter file for March 20.  A corresponding New Release file would be in pub/cmd and is named cds.nr.risk.20120320.s.xml.zip.

To find the ratio, search for the ccDef element further containing the element <cc>OVPT</cc>.  The initial to maintenance ratio can then be read from the <adjRate> element with rate ID 5 and base rate 2.  For example:

<adjRate>

<r>5</r>

<baseR>2</baseR>

<val>1.100000</val>

</adjRate>

For FX, the process is exactly analogous, except that there is a combined commodity, and hence an initial to maintenance ratio, for each currency pair.  The files will be in the pub/span/fx directory.  The production file for March 20 would be named cme.fx.risk.20120320.s.xml.zip, and the corresponding New Release file would be named cme.fx.NR.risk.20120320.s.xml.zip.

For IRS:

The risk parameter files are located on the Firm FTP Server in the pub/irs directory.  The initial to maintenance ratios are provided in the file IRS_IM_Ratio.csv.  The corresponding New Release file would be IRS_IM_Ratio.NR.csv.  The data is provided by currency of denomination of the swaps.  For example:

CO,Prod_Type,Cur,IM_Ratio

CME,IRS,CAD,1.10

CME,IRS,CHF,1.10

CME,IRS,EUR,1.10

CME,IRS,GBP,1.10

CME,IRS,JPY,1.10

CME,IRS,USD,1.10

SFTP Connectivity Conversion Deadline Extension-June 1, 2012

At the request of Clearing Member Firms, we are extending the conversion deadline for WAN (Leased Line) connections from FTP to SFTP (secured FTP) until June 1^st, 2012.

Please reference Advisory Notice number 12-038 at this link for additional detail.

http://www.cmegroup.com/tools-information/advisorySearch.html#

Please be aware, firms that have not converted to the new SFTP IP address by June 1^st, 2012 will incur a monthly maintenance fee to use the old FTP server.  Updated notices will follow to outline fees.

For further information or assistance please contact Clearing Services at (312) 207-2525 or

E-mail SFTPConversion@cmegroup.com

Japanese Government Bonds

CME Clearing (CME) is pleased to announce the addition of Japanese Government Bonds to our acceptable collateral list for foreign sovereign debt effective May 1, 2012.  This will be applicable for CDS, IRS and listed derivatives.  Please see the table below for haircut information.

Japanese Government bonds will be accepted in the local market.  The settlement platform in Japan is the JGB Book-Entry system. 

CME Clearing will need clearing member firm’s local market JGB Book Entry system delivery instructions prior to firm’s intent to pledge.  Please contact CME Clearing for more information.  Japanese Government bonds typically settle in T+2.  Please allow enough time to enter your Clearing 21 transaction on trade date two days prior to expected settlement date.  The asset type will be BILL or BOND and selecting currency JPY to enter these transactions into Clearing 21.  CME Clearing may have to add your ISIN to the available securities list.  Please email chfin@cmegroup.com with your ISIN request.

Portfolio Margining for Eris Exchange and CME Interest Rate Futures to Begin on Monday, April 16, 2012

On Monday April 16, 2012, CME Clearing will begin offering portfolio margining of CME Eurodollar futures together with Eris Exchange Interest Rate Swap futures.  The program will be available for both customer and house accounts on that date, and will be extended to other CME Group interest-rate futures shortly thereafter.

 The program will allow accounts with offsetting positions in Eurodollars and Eris Exchange contracts to obtain risk offsets and, hence, lower performance bond (initial margin) requirements. Actual risk offsets vary by portfolio, but can reach as high as 95% for highly correlated positions.

 To take advantage of the program, clearing firms will use special firm numbers for interest rate futures trades to be margined together with Eris Exchange contracts, in exactly the same manner as is used for the Eris Exchange contracts themselves.  You can execute directly with the special firm number, do an allocation on trade date, or do a transfer at any time, and such allocations or transfers will be exempt from fees.

This program should not be confused with CME’s program for portfolio margining for interest-rate futures together with CME-cleared interest-rate swaps, which launches on Monday, May 7, 2012 for house accounts.

 The reduced margin requirements will be reflected in the datafiles provided by CME Clearing to FCM’s with customer positions in Eris contracts.  Firms may also use CME’s margin software to verify margin calculations for these portfolios and perform what-if analysis.

For more information, please contact Mahmoud Ajamia at CME Clearing at 312-634-1595.

This link provides the advisory notice reflecting the contract specifications for this new contract.

NEW PRODUCT:  Soybean Calendar Spread Option

This link provides the advisory notice reflecting the contract specifications for this new contract.