Cleared OTC Financial Products

Transcription

1 Cleared OTC Financial Products Security. Neutrality. Transparency.

2 Contents Global Exchange & Clearing House Multi-Asset Class OTC Solution 9 Compression Services, Initial Margin & Client 16 Reporting Account Structures & Risk Waterfalls Contacts

3 Global Exchange & Clearing House

4 CME Group Who We Are World s most diverse derivatives marketplace, handling 3 billion contracts worth approximately $1 quadrillion annually Home of the USD market; US Treasury, Fed Funds and Eurodollars all clear CME Group Unrivalled depth of liquidity in Futures, Options, Swap Futures and OTC contracts Our Global Reach ACCESS IN CONNECTIONS THROUGH RELATIONSHIPS WITH 150 Countries 11 Global Hubs 12 Partner Exchanges 2 As at 23 September

5 Strong Growth in Firms Exposure in Interest Rate Futures The number of Large Open Interest Holders reached an all-time high in mid-august CME Interest Rate Futures hit a record 1,740 Large Open Interest Holders, up from 1,325 two years ago in August The CFTC Commitment of Traders Report includes the number of large open interest holders in each futures product, based on certain thresholds for each one. The growing number of firms holding large exposure using futures, indicates the industry need for standardized, exchange-traded products in the new environment. 1,800 CME Group Interest Rate Futures Aggregate Number of Large Open Interest Holders All-Time High, 1,740 1,600 1,400 1,200 15% Annual Growth Rate During 2 Year Period 1,

6 Why Customers are Choosing CME Group for OTC Over 500 customers have chosen and used CME Group for their OTC clearing business Over 20 liquidity providers that are both US and Non-US institutions Broadest Product Offering Global multi-asset class solution for IRS, CDS, FX, and Commodities Only clearing house to offer clearing in 19 IRS currencies including Mexican Peso, Margin Efficiencies Capital efficiency of portfolio margining of IRS vs. Interest Rate Futures, including Eurodollars, Treasuries, DSFs, and Ultra Bond - 11 Clearing Members now live and 43 unique firms taking advantage of this solution, with the risk reductions now generating approximately $3.5 billion in margin efficiencies Operational Flexibility Ability to real-time clear trades in all time zones with global follow-the-sun customer support Compression via Coupon blending that reduces gross notional outstanding and line items 6

7 Trends & Highlights IRS ADV of $131 billion USD D2C 51% market share D2D ADV > $7B since July up from <1B per day in 2014 $ 15 Trillion gross notional removed via Coupon Blending & 2.2 Trillion via TriReduce Volume & Market Share CDS Cleared over $575 billion in 2015 Record Open interest > $57 billion CDX ADV > $1.3 billion from a global client base 15% market share of CDX and growing Product Developments Delivered in 2015 itraxx (Main and Crossover) CME specific USD curve for IRS BRL Swaps TriOptima multilateral compression Product Pipeline USD Swaptions Additional IRS currencies EUR Swaptions 9% of all IRS D2C Clearing is in Voluntary Products, up from less than 5% in

8 Over 60 Market Participants Clearing MXN IRS at CME 47% of the global MXN IRS market is now cleared Q3 ADV of $4.355 billion notional per day, with BIS data reporting $9.285 billion notional per day from the last report Of the 61 MXN IRS Market Participants, 42 started clearing in 2015 Market Participants have taken advantage of strong, rising liquidity in both the Dealer-to-Client and Dealer-to-Dealer spaces. CME is excited to now offer BRL CDI IRS clearing following the success for MXN TIIE IRS MXN IRS Notional Cleared MXN IRS Clearing Participants 8

9 Multi-Asset Class OTC Solution

10 CME Group Structure and Global Offering CME CLEARING EUROPE Principal Model 8 Clearing Members English Law / EMIR Account Structures OTC IRS Non-US Clients Only CME CLEARING (US) Agency / FCM Model 24 Clearing Members US Law / DFA Account Structures OTC IRS, CDS and FX US and Non-US Clients Regulatory Recognition for CME Group s Global Clearing Solution In August 2013, global regulators including the CFTC and ESMA released cross border guidance and set the path for mutual recognition of clearing and reporting regulations CME Inc. has been operating as a Recognised Overseas Clearing House (ROCH) by the UK Financial Services Authority (FSA) since June 2007 CME Clearing Europe is an authorised central counterparty under EMIR, supervised and regulated by the Bank of England. It is also a QCCP for regulatory capital purposes 10

11 Membership and Connectivity Execution & Affirmation OTC Clearing Members

12 Products Supported OTC IRS Fixed/Float Tenor Index Zero Coupon Swaps Currency Years Months USD I EUR I GBP 50 years BRL 10 years USD LIBOR Overnight Index Swap (OIS) EUR EURIBOR USD I EUR I GBP I JPY 30 years GBP LIBOR CAD CDOR Basis Swaps JPY LIBOR USD I EUR I GBP I JPY 51 years CHF LIBOR AUD I JPY 31 years AUD BBR Fed Funds vs. Libor (USD) 30 years SEK STIBOR DKK CIBOR Forward Rate Agreements (FRA) NOK NIBOR USD I EUR I GBP I JPY I AUD I CAD MXN 28d TIIE-BANXICO CHF I CZK I DKK I HUF I JPY I NOK 3 Days 3 Years NZD BBR NZD I PLN I SEK I SGD I ZAR HKD HIBOR SGD SOR-VWAP HUF BUBOR ADDITIONAL EXPANSIONS CZK PRIBOR USD Swaptions / EUR Swaptions PLN WIBOR INR, KRW, CNY ZAR JIBAR BRL BRL-CDI 12

13 Products Supported OTC FX Product coverage: 38 FX Non Deliverable and Cash Settled Forwards OTC FX Cash-Settled Forwards OTC FX Cash-Settled Forwards EUR/USD USD/PLN Brazilian Real AUD-USD USD/ZAR Philippine Peso OTC FX Non-Deliverable Forwards GBP/USD USD/CZK Malaysian Ringgit USD/CHF USD/TRY Indian Rupee USD/SEK USD/THB Korean Won USD/DKK USD/CAD* Chinese Yuan NZD/USD USD/JPY* Indonesian Rupiah USD/NOK AUD/JPY* Taiwan Dollar USD/HKD EUR/JPY* Chilean Peso USD/HUF CAD/JPY* Colombian Peso USD/ILS EUR/AUD* Peruvian Sol USD/MXN EUR/CHF* Russian Ruble USD/SGD EUR/GBP* * Non USD Settled 13

14 Products Supported OTC CDS Indexes Corporate Bond Indexes Mandated for Clearing Status Tenors 3Y 5Y 7Y 10Y Series North America CDX NA IG Y Live 8+ CDX NA HY Y Live 12+ Europe itraxx Main Y Live 17+ itraxx Crossover Y Live 17+ CDX Fee Comparison CME Volume Tiers (in billions) Competitor Fee CME Fee per Tier % Savings at CME <1.0 $6.00 $ % $6.00 $ % $6.00 $ % $6.00 $ % $6.00 $ % Clients averaging 3 to 10 billion notional per month per Clearing Member relationship achieve savings up to 40% All fees are determined on a rate per million basis 14

15 Products Supported CME Deliverable Swap Futures Interest rate swap exposure with all of the benefits and efficiencies of futures while receiving CME Deliverable Swap Futures are a liquid and efficient means of managing MAC swap exposure through a Central Limit Order Book - Quarterly futures contracts that expire on IMM dates and at expiration - Physically deliver into a CME Cleared MAC Swap, with approximately 25% of open positions are taken into delivery each quarter - Can be executed as block trades via the CLOB or OTC, for those clients that prefer to leverage existing counterparty relationships. Futures offer operational benefits compared to trading IRS on a SEF, preserving the anonymity of the trader and supporting the needs of asset managers Swap Futures offer capital efficiencies with portfolio margining and lower cost of trading - The total cost for futures trading is less compared to swaps, especially on longer durations and later maturities Industry leading swap future by average daily volume Twice the daily volume of the next most active swap futures contract. Only swap futures in the CFTC s Large Open Interest Holder Report, currently with 40+ large open interest holders in both the 5 and 10 year contracts Swap Futures Market Share 15

16 Compression Services, Initial Margin & Client Reporting

17 Coupon Blending Tri-Optima TriReduce Compression Services $14.9 Trillion Gross Notional Reduced Over 197,000 line items removed $2.2 Trillion Gross Notional Reduced Over 44,000 line items removed IRS CDS Netting Daily cycle enables perfectly off-setting positions to either be totally or partially terminated via netting. Clients can define and manage their netting via their account set-up: Gross: If this option is selected on the account, the trades will not net. Net: Eligible trades will automatically net based solely on trade attributes. Selective Net: Eligible trades will only be netted on instruction from the client Coupon Blending An innovative solution that reduces gross notional outstanding and line items Unilateral and riskless compression available on a daily basis Works across pay-fixed and receive-fixed cleared interest rate swaps with varying fixed rates and notional amounts, but otherwise identical attributes TriOptima s TriReduce Enables multi-lateral risky compression to enable further portfolio efficiencies Currently only available for direct members Two customer netting options are available and are defined in the account set-up: Daily Net At the end of the day, trades are automatically net into a single position view. The client can maintain separate transactions as they see fit, provided the net matches with CME Adjusted Gross At the end of the day, trades are left gross with the ability to selectively net trades 3 As at 24 September Compression Cycle run early September

18 Initial Margin Models Summary of the CME Initial Margin Model for IRS 99% 5-day coverage standard (7 day coverage period for client business in CMECE) Volatility rescaling to determine margins for a given IRS portfolio Historical shocks are scaled to simulate potential volatility environments prior to generating a P/L distribution for VaR calculations 5 Year+ look back period for CME Inc and a 5 year look back for CMECE 5 Year+ look back includes extreme market events like Lehman default CME offers a shifted log approach where the zero-rates are first shifted by 4% before computing the returns Model achieves 99% coverage with 99.7% confidence level EWMA Historical VaR model adjusts historical shocks (returns) to account for an estimate of volatility over the future 5-day horizon; typically, margins are higher than plain ( un-scaled ) Historical VaR as volatility is forecasted to ramp up and vice-versa Model uses volatility floors to mitigate against margin decline in a low-volatility environment CME Clearing accepts a broad array of collateral for the Customer OTC Account Class Full details of eligible collateral and the associated haircuts can be found at the link below

19 Portfolio Margining Unparalleled Margin Efficiencies via the portfolio margining of interest rate swaps versus Futures and Deliverable Swaps Futures Background CME Group has administered a range of cross-margining programs for more than 20 years IRS Portfolio Margining for Clearing Members was launched in May 2012, and the solution became available to customers in November 2012 Broad Adoption From Market Participants 13 Clearing Members are now live with IRS Portfolio Margining, and over 350 accounts are benefitting from the solution Total Risk Reductions now account for approximately $3.3 billion in initial margin savings Scope of the Solution Achieve capital savings across a diverse portfolio of: 19 cleared OTC IRS currencies CBOT Treasury Futures, now including the Ultra Bond CME Eurodollar Futures USD Deliverable Swap Futures 19

20 Client Reporting CME provides end of day reporting at the client level. This allows clients to see positions, variation margin and initial margin direct from the CCP and across multiple clearing members if applicable Spread sheet reporting csv format via FTP Description Time Variation Margin Trade Register IRSTR_CMZ_YYYYMMDD_EOD.csv Trade and position level records, detailed trade economics, variation margin 7.30pm EST Initial Margin Margin Recap MR_CMZ_YYYYMMDD.csv Initial margin per currency and account 9pm EST Pricing Pricing File IRSPF_CMZ_YYYYMMDD.csv Anonymized pricing file for custodians and outsourced back-office functions 5pm EST Intraday 9pm EST end-of-day 20

21 Clearing Online Risk Engine ( CORE ) Margin Tool CME CORE Capabilities CME PRODUCTS SUPPORTED Futures and Options Agriculture, Energy, Equity Index, FX, Interest Rates, Metals Credit Default Swaps Interest Rate Swaps FX Non-Deliverable Forwards and Cash-Settled Forwards FUNCTIONALITY Optimizer for Portfolio Margining Interest Rate Portfolio Margining Portfolio/Trade Editing Ideal business user solution for Portfolio Margin Savings Analysis Allows firms to calculate their margin for their portfolios Can upload exact portfolio via a portfolio upload or enter trades manually Once run, CME CORE calculates the portfolio margin savings between OTC IRS and Interest Rate Futures Reports breakdown position transfers in PDF and CSV file format Portfolio/Trade History Incremental Margin Estimator/Delta Ladders 21

22 Account Structures & Risk Waterfalls

23 Account Structures CME US LSOC Without Netting Variation Margin In an FCM default, CME Clearing will discontinue netting variation gains and losses within the defaulted FCM s cleared swaps customer account with CME Clearing on a post-default basis By discontinuing Variation Margin netting, CME will better protect non-defaulting customers by helping them keep their positions intact while porting them to another FCM with as much collateral as possible LSOC with Excess Flexibility to hold excess collateral at CME Clearing, with protection of the client s full collateral value Client s FCM must submit a daily Collateral Value Report (CVR) to specify the collateral value of each individual account Combined Cash Flow Under LSOC with Excess Flexibility to hold excess collateral at CME Clearing, with protection of the client's full collateral value Efficient daily margin process allowing firms to use the excess collateral to cover variation margin obligations, with the potential to eliminate daily cash movements Lower variation margin calls for Clearing Members, reducing the funding gap between Clearing Firms and their clients 23

24 Account Structures - CMECE Omnibus Segregated Account Position accounts and margin accounts maintained at individual client level Customer accounts aggregated at the Clearing Member level In the event of a Clearing Member default: CMECE is permitted to use collateral of clients within the same Omnibus Client Account to satisfy the Clearing Member s obligation to the Clearing House, leaving clients in same account exposed to the risk of one another CMECE is not permitted to use collateral of clients in other Omnibus Accounts to satisfy the Clearing Member s obligation to the Clearing House, leaving clients in other accounts protected from the risk of one another Clearing Members can operate one or more segregated Omnibus Client Accounts Individually Segregated Account Position and margin accounts maintained at individual client level Customer accounts aggregated at the Clearing Member level In the event of a Clearing Member default: Customer s collateral is segregated from and not exposed to risk from other customers CMECE is not permitted to use collateral within the Individually Segregated Account to satisfy the Clearing Member s obligation to the Clearing House Clearing Members can operate any number of Individually Segregated Accounts. Fully Segregated Account Enhanced Portability: Position accounts and margin accounts maintained at individual client level and individual asset record level Where porting has been agreed CMECE guarantee to port the actual assets lodged Collateral is segregated within the Clearing House's books and records, and on the custodial level providing transparency and flexibility to the customer at any given time Clients are not exposed to fellow customer risk of clients within other Individually Segregated Accounts 24

25 Default Waterfall CME US IRS Financial Safeguards Base Financial Safeguards CDS Financial Safeguards $5.151 Billion $ Billion $778 Million Assessment Powers 3 rd and 4 th largest CM shortfalls Assessment Powers 275% of GF per Default 1 Assessment Powers 3 rd and 4 th largest CM shortfalls Non-Defaulting Clearing Members IRS Guaranty Fund Contributions Non-Defaulting Clearing Members Base Guaranty Fund Contributions Non-Defaulting Clearing Members CDS Guaranty Fund Contributions $150M CME Designated Working Capital for IRS Guaranty Fund $100M CME Designated Working Capital for Base Guaranty Fund $50M CME Designated Working Capital for CDS Guaranty Fund 2 Defaulted Clearing Member IRS Guaranty Fund Contribution Defaulting Clearing Member Base Guaranty Fund Contribution Defaulting Clearing Member CDS Guaranty Fund Contribution Defaulted Clearing Member IRS Fund Performance Bonds Defaulting Clearing Member Base Fund Performance Bonds Defaulting Clearing Member CDS Fund Performance Bonds IRS Financial Safeguards Product Coverage IRS Cross-margined futures Base Financial Safeguards Product Coverage Futures products OTC FX Other non-irs or CDS OTC products CDS Financial Safeguards Product Coverage CDS 1 See CME Rulebook Chapter 8, Rule 802.G for greater detail 2 Equal to the greater of (x) $50 million and (y) 5% of the CDS Guaranty Fund, up to a maximum of $100 million *All GF numbers are as of 9/28/

26 Default waterfall - CMECE IRS Financial Safeguards Base Financial Safeguards 140 Million Million Assessment Powers 3 rd and 4 th largest CM shortfalls Assessment Powers 275% of GF per Default 1 Non-Defaulting Clearing Members IRS Guaranty Fund Contributions Non-Defaulting Clearing Members Base Guaranty Fund Contributions 44M CME Designated Working Capital for IRS Guaranty Fund 17.9M CME Designated Working Capital for Base Guaranty Fund Defaulted Clearing Member IRS Guaranty Fund Contribution Defaulting Clearing Member Base Guaranty Fund Contribution Defaulted Clearing Member IRS Fund Performance Bonds Defaulting Clearing Member Base Fund Performance Bonds IRS Financial Safeguards Product Coverage IRS Base Financial Safeguards Product Coverage Futures and options Other non-irs OTC products 1 See CME Rulebook for greater detail * All Financial Safeguards numbers are as of 06/30/

27 Contacts

28 Contacts Liam Smith Chicago Office Shawn Creighton Chicago Office Deepa Josyula New York Office Phil Hermon London Office Harry Yeo Singapore Office

29 Disclaimer CME Group, CME Europe and CME Clearing Europe are brands of CME Group Inc. and its subsidiaries, members of which include Chicago Mercantile Exchange Inc., CME Europe Limited, CME Clearing Europe Limited and CME Marketing Europe Limited. Exchange traded and Over-The-Counter (OTC) derivatives are not suitable for all investors, and involve the risk of loss. Exchange traded and OTC derivatives are leveraged investments, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money initially deposited for an exchange traded or OTC derivative position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. CME Group is the trademark of CME Group, Inc. The Globe logo, Globex and CME are trademarks of Chicago Mercantile Exchange, Inc. CBOT is the trademark of the Board of Trade of the City of Chicago Inc. NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. Although every attempt has been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or necessarily the results of actual market experience. All data is sourced by CME Group unless otherwise stated. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX, CME Europe, CME Clearing Europe and CME Group rules. Current rules should be consulted in all cases concerning contract specifications. This communication does not constitute a Prospectus, nor is it a recommendation to buy, sell or retain any specific investment or to utilise or refrain from utilising any particular service. This communication is for the exclusive use of Eligible Counterparties and Professional Clients only and must not be relied upon by Private Clients who should take independent financial advice. Circulation should be restricted accordingly. CME Europe Limited is a Recognised Investment Exchange (RIE) recognised and supervised by the Financial Conduct Authority in the United Kingdom. CME Clearing Europe Limited is a Recognised Clearing House ( RCH ) recognised and supervised by the Bank of England. CME European Trade Repository is a business name of CME Trade Repository Limited, a registered trade repository under EMIR supervised by the European Securities and Markets Authority. Globex Markets Limited is authorised and regulated by the Financial Conduct Authority. Chicago Mercantile Exchange Inc. is a Recognised Overseas Clearing House (ROCH) recognised by the Bank of England. Chicago Mercantile Exchange Inc., Board of Trade of the City of Chicago and the New York Mercantile Exchange are Recognised Overseas Investment Exchanges (ROIE s) recognised by the Financial Conduct Authority. Issued by CME Marketing Europe Limited. CME Marketing Europe Limited (FRN: ) is authorised and regulated by the Financial Conduct Authority in the United Kingdom. 29