CMED Options Buying Power Limits

Overview

CME Direct has added controls for clearing firms that allows them to set a limit specifically for options premium buying power.

Details

  • Clearing firms can set a limit for options buying power specifically for Globex trades executed in CME Direct only.
  • This option does NOT provide account or trading firm level controls.
  • Once enabled, these controls impact ALL CME Direct accounts that are setup under that clearing member. *
  • There is no visibility in AMS or elsewhere where clearing firms can monitor the current options buying power utilization, but traders can view their utilization inside CME Direct credit query tool (shown below)

Note: *One exception is accounts that are setup in AMS using only a long/short qty, and have no credit limit dollar amount. Accounts setup like this will function as normal, and will not be limited by any of the settings here.

Implementation

The limit amount is set as a relative % to the Globex credit limit on each account in AMS.

The Clearing Firm would only setup two values:

  • Aggregate daily limit % daily buying power limit as a % of the Globex credit limit on each account
  • Per order limit % per order limit as a % of the Globex credit limit on that account

The referenced Globex credit limit in AMS is visible here:

  • Credit usage does not impact the amount of buying power, since the buying power is relative to the total Globex credit on the account, not the remaining Globex credit on the account.
  • When enabling this feature, all of the existing margin based credit controls still apply.

Calculation

The premium is calculated is as follows:

  1. the sum of the value of premiums for working long option orders
  2. plus the sum of the value of premiums for traded long options
  3. minus the sum of the value of premiums for traded short options

Therefore, while filled shorts will decrease the utilization of options buying power, working shorts have no impact on available buying power.

Note: The premium is calculated separately on each outright leg for filled options, however, for working option strategies it will use the strategy price, which inherently nets the longs and shorts.

Error Messages

If users exceed the utilization on the account or the order, they will see specific error messages that let them know this is the case.

Account Level Limit Error Message

Order Level Limit Error Message

Account Utilization View in CME Direct

CME Direct has built additional utilization information into the CME Direct GUI, where traders/brokers can view this information in the same place they can currently view their overall credit utilization.

Users can load the credit query from the Menu dropdown:

Here they can select an account as usual, and see the option premium utilization next to the Total Usage on the account. If the selected account's clearing firm is not utilizing a buying power limit, nothing will be shown here.

Example

In this scenario, there is:

  • a $1,000,000 Globex credit limit on a particular account
  • 50% account level limit in the buying power limit
  • 5% order level buying power limit

 

This translates in to the client having

  • $500,000 of buying power available for that account
  • 50,000 limit available on individual orders

 

  1. If a trader were to put on futures positions that generated $500,000 of Initial Margin as the first action, the Globex credit available will go down to $500,000, but the buying power would remain unchanged at $500,000.
  2. If the trader were to sell $1,000,000 in premium options as the first action, the trader could then buy $1,500,000 of options premium.
  3. If the trader tries to buy an option strategy priced at $10 for quantity of 10,000, this would result in a reject message as the total premium on the order is $100,000, and the per order limit is $50,000.

Note: These settings percentages are for illustration purposes only, and are not intended to be percentage recommendations.

Enabling Buying Power Limits

Permissioned Clearing Admin users can access an additional section in Clearing Admin screen. Here, they can set an options buying power limit, which runs across ALL of the clearing members accounts.

Note: Firm Admins are responsible for granting users this permission for this role in CME Direct Admin (screen below).

  • To set buying power limits
  1. Click the menu button in the top left, and select Buying Power.

  1. Select the top checkbox to enable limits.
  1. Enter Aggregate daily and Per order limits (% amount for both limits) then select Save.