Cleared OTC FX Products and Margin

Transcription

1 Cleared OTC FX Products and Margin OTC CLEARING THE WAY FORWARD 1

2 Global FX Clearing Solution The broadest and most capital efficient FX clearing solution to meet your needs Single guaranty fund: a diverse pool of products across asset classes amounting to a >$4.5 billion Base Guaranty Fund. The result is a secure and cost effective solution which is an 1/8 th of the cost on incremental funding compared to other NDF clearing providers. 12 NDFs Unparalleled portfolio margining opportunities between cleared FX and exchange listed FX Futures and Options, with NDF margin reductions of up to 90% against emerging market futures and 56% against G10 futures*. The regulatory authorization for enabling portfolio margining between ETD FX and OTC FX products is now also in place, with a target launch in late The first and only FX Blending solution, which will significantly reduce notional outstanding and line items. This went live in production on February Cash Settled FX Options Single Guaranty Fund Portfolio Margining 26 G10 NDFs The only cleared cash-settled FX Options solution, which provides superior cost and capital efficiencies to physically delivered options solutions, which are cost prohibitive. 99 Exchange Listed Futures & Options * Analysis for IM savings conducted on January

3 NDF & G10 NDF Offering The CME OTC FX offering includes 12 NDF contracts and 26 Cash Settled Forwards ( G10 NDFs ) OTC FX Cash-Settled Forwards OTC FX Cash-Settled Forwards OTC FX Non-Deliverable Forwards EUR/USD USD/PLN USD/BRL AUD-USD USD/ZAR USD/PHP GBP/USD USD/CZK USD/MYR USD/CHF USD/TRY USD/IDR USD/SEK USD/THB USD/KRW USD/DKK USD/CAD* USD/CNY NZD/USD USD/JPY* USD/INR USD/NOK AUD/JPY* USD/TWD USD/HKD EUR/JPY* USD/CLP USD/HUF CAD/JPY* USD/COP USD/ILS EUR/AUD* USD/PEN USD/MXN EUR/CHF* USD/RUB USD/SGD EUR/GBP* * Non USD Settled 3

4 FX Options Product Overview Product Overview FX Options went live for clearing on 27 November 2017 Cash settled plain vanilla European style FX Options USD/JPY, EUR/USD, GBP/USD, AUD/USD, USD/CHF, USD/CAD, EUR/GBP 10am NY auto exercise cash settlement (with settlement in quote currency) Options out to 2 years including any strikes Fixing Rate is WM/R 10am NY Highlights All OTC FX products reside within the base risk waterfall of CME consequently offering material capital efficiencies and portfolio margining opportunities versus ETD FX products Portfolio margining of OTC FX Options versus 12 NDFs and 26 G10 NDFs is live in production Trade submission is platform agnostic via CME ClearPort including interfaces such as Traiana, Bloomberg and MarkitServ Managing Cleared Delta to Optimize Cleared Initial Margin CME offers the cleared products below to manage the delta of cleared FX Options. These products will be portfolio margined together to help optimise the cleared IM requirements: o o 26 cash settled forwards ( G10 NDFs ) ~100 Listed FX Futures (quarterly and monthly expiries) o CME FX Link (CLOB Traded OTC Spot Vs CME FX Futures basis) launches Q

5 FX Options Demand Driven by IM Efficiencies The CME FX Options solution delivers material IM efficiencies versus the ISDA SIMM requirements on bilateral activity 5

6 Portfolio Margin Solution for FX Portfolio Margin CME has offered portfolio margining services for ETD versus OTC products since 2012 The existing offering for IRS is supported by 15 FCMs and used by >450 client accounts ever day to generate savings of c. $2bn The regulatory authorization for enabling portfolio margining between ETD FX and OTC FX products is now in place This authorization applies to all ETD and OTC FX products currently live at CME and also covers product extensions such as NDOs when they are made available for clearing CME can conduct analysis to show the benefits of portfolio margining ETD FX versus OTC FX now, and the functionality to offer the service in production is under development for release later in 2018 The table below shows some examples of potential savings available via the CME portfolio margining solution.* Contracts Included in Portfolio Margining Initial Margin Off-Set Non-Deliverable Futures Versus OTC NDFs 84% Non-Deliverable Futures vs G10 OTC NDFs 39% G10 Futures Versus G10 OTC NDFs 93% G10 Futures Versus OTC NDFs 41% G10 Futures Versus G10 OTX FX Options 28% * Figures in table from analysis conducted on January

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8 CME Group is the Largest FX Futures Exchange Record Number of Participants in CME FX CME FX Futures has reached record Large Open Interest Holders of 1,106 The growing number of firms holding large exposure using futures indicates the continued industry adoption of standardized, exchange-traded products as the FX market continues its evolution Leading Global FX Ecosystem CME FX notional average daily volume of >$90 billion with open interest of >$240 billion at the end of September 2017 Over $9 billion per day in options transacted and $83 billion in futures, ability to execute electronically or via relationship based trading facilities Source: CFTC *The CFTC defines large open interest holders as having at least 400 open contracts in Major Foreign Currency futures and at least 100 open contracts in Other Foreign Currency futures. 8

9 Initial Margin Methodology Margin Model Goals Captures potential loss over MPOR from all risk factors that affect the portfolio Achieves 99% coverage across a comprehensive set of Risk Profiles Anti-procyclical yet appropriately react to changes in FX risk factors and volatility regimes Scales to other currency pairs as well as Portfolio Margin with listed and other products Provide transparency to market participants via CME CORE & Deployable Libraries Makes easier the deployment of analytics for pre- and post- trade services Methodology Leverage the Historical VaR framework to portfolio margin FX portfolio of NDFs, G10 NDFs and Options 75% HVaR Initial Margin* = 25% SVaR Liquidity / Concentration Add-On Valuation Uncertainty Margin (Option Only) Margin Tools CME CORE and the Margin API will support initial margin calculations for portfolios of supported FX products *HVaR is Filtered HVaR model using EWMA volatility (scaled). SVaR is Stress VaR anti pro-cyclical component. The confidence level of the VaR is 99.7%. Requirement of 99% Coverage 9

10 CME CORE Key Benefits Access to CME s OTC FX margin methodologies to calculate indicative margin requirements for NDF, CSF and FXO portfolios Includes ISDA SIMM calculations to compare CME cleared versus bilateral IM requirements Provides CME CORE users with an insight into CME Group s global product suite (12 OTC FX NDFs, 26 OTC FX CSFs and 7 OTC FXO). Users can perform hypothetical, what-if, margin analysis to assess the impact of clearing additional trades within their existing portfolio. 10

11 Disclaimer CME Group is a brand of CME Group Inc. and its subsidiaries, members of which include Chicago Mercantile Exchange Inc. 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, the Globe logo, Globex and CME are trademarks of Chicago Mercantile Exchange, Inc. CBOT is a 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, 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 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. Chicago Mercantile Exchange Inc. is a Recognised central counterparty (CCP) under EMIR. 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. Copyright 11