Cleared OTC Financial Products

Transcription

1 Cleared OTC Financial Products Security. Neutrality. Transparency. CLEARING THE WAY FORWARD 2016 CME Group. All rights reserved.

2 Contents Interest Rate Swap Clearing OTC Foreign Exchange Clearing Capital & Margin Efficiencies Contacts

3 Interest Rate Swap Clearing

4 Why Customers are Choosing CME Group for OTC Over 600 customers have chosen and used CME Group for their OTC clearing business More than 25 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 21 IRS currencies including Korean Won and Indian Rupee Margin Efficiencies Capital efficiency of portfolio margining of IRS and swaptions vs. Interest Rate Futures, including Eurodollars, Treasuries, Mac Swap Futures, and Ultra Bond - 15 Clearing Members now live and over 465 accounts taking advantage of this solution, with risk reductions now generating an average $2.23 billion in margin efficiencies in 2017 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 4

5 OTC Highlights & Trends Voluntary Clearing: Clearing of non-mandated products continues to be the primary focus for clients in the OTC space, as the impacts of uncleared margin rules spreads through the market. Growing Our Core US Dollar Offering: YTD volume across all products in our core US Dollar offering of has reached $61B ADV, with over 360 participants clearing at CME this year Expanding Global Presence: CME s MXN and BRL IRS offering has seen over 170 participants, including more than 25 regionally-based participants, clearing $7.6T USDE Notional since MXN and BRL clear over $20B ADV in Product Innovation: Expanded coverage to 21 Currencies with the addition of KRW and INR on July 10, scaling USD Swaptions and NDF clearing offerings, and plan to add CLP, COP, and CNY IRS in H Across the IRS Clearing Industry, Voluntarily Cleared Products are Growing 3X Faster than Mandated Products Mandated Products ADV ($bn) +35% $1,635 Non-Mandated Products ADV ($bn) +132% $182 $1,207 $1,096 $1,272 $134 $79 $

6 Latin America IRS Clearing CME Group has cleared over $5.6 Trillion in MXN IRS since launching in Over 165 Participants have cleared MXN IRS Swaps at CME, including 48 new participants in 2017 alone. CME launched BRL interest rate swap clearing in Q and has since cleared over $2.0 Trillion across over 90 participants to date, including 38 new participants this year. CME clears >95% of the MXN and 80% of the BRL market in 2017, per Clarus SDRview. Completed 3 trireduce compression cycles in MXN, two of which have included clients participating. We also conducted the first-ever cleared BRL CDI trireduce cycle on September 22 nd. MXN and BRL IRS Volume at (USDE $bn) LatAM Participant Ecosystems $35 $30 $25 $20 $15 $10 $5 $0 $15 MXN $18 BRL $23 $15 $20 $19 $22 $16 $27 $28 $19 $14 $22 MXN TIIE Hedge Fund 83 Bank/Dealer 39 Asset Manager 47 Hedge Fund 54 BRL CDI Bank/Dealer 19 Asset Manager 21 6

7 Notional Outstanding ($m) Total Participants APAC IRS Clearing CME Group launched KRW IRS and INR OIS on July 10 th, 2017 in response to marketplace demand for clearing for the products. Since launching, 13 participants have cleared CME has cleared 29 trades, or $577 million notional, in the currencies. Open interest has grown to $456m as of Oct. 17 th and we expect this to continue growing as more participants onboard in the coming months. KRW & INR Participants/Notional Outstanding KRW & INR Participant Ecosystem INR OIS KRW IRS Total Participants $ $ $400 $300 $ Sell Side 8 Buyside 5 $100 2 $0 0 Launch Month 1 Month 2 Month 3 7

8 CME Group Swaptions Clearing Clearing Swaptions Exposures Amplifies our Unparalleled Capital Efficiencies CME cleared 31 trades for a totalling $560m notional volume in September 8 participants have cleared swaptions to date, including 3 buy-side customers and 5 liquidity providers Voluntary clearing allows market participants the flexibility to reduce the risk of their cleared IRS portfolios Margin offsets of up to 91% possible by adding swaptions to CME cleared IRS portfolios Portfolio margining with our cleared IRS and Eurodollar, Treasury, and Deliverable Swap Futures Reduces bilateral counterparty credit risk and frees up credit lines Improves capital ratios, lowering capital charges that could ultimately be passed onto end users "With uncleared margin rules coming into greater focus for our clients, Credit Suisse is excited to facilitate voluntary swaptions clearing at CME Group. Clearing swaptions enables our clients to obtain the greatest operational and capital efficiencies from clearing, while reducing the risks in their portfolios." "Barclays is proud to collaborate with CME Group as one of the banks to execute the first cleared swaption trade. Clearing through CME will allow both Barclays as well as our clients to significantly improve the capital consumption and risk management of our swaptions portfolios." John Dabbs, Global Head of Prime Derivatives Services at Credit Suisse Sabri El Jailani, Global Head of Rates Options Trading at Barclays *Pending regulatory approval 8

9 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 INR 10 year CAD CDOR AUD 6 years JPY LIBOR CAD 3 Years CHF LIBOR Basis Swaps AUD BBR USD I EUR I GBP I JPY 51 years SEK STIBOR AUD I JPY 31 years DKK CIBOR Fed Funds vs. Libor (USD) 30 years NOK NIBOR KRW KRW-CD- KSDA- BBG Forward Rate Agreements (FRA) MXN 28d TIIE-BANXICO USD I EUR I GBP I JPY I AUD I CAD NZD BBR CHF I CZK I DKK I HUF I JPY I NOK HKD HIBOR NZD I PLN I SEK I SGD I ZAR 3 Days 3 Years SGD SOR-VWAP HUF BUBOR Swaptions CZK PRIBOR USD ( 2 years expiry) 30 years PLN WIBOR ZAR JIBAR 9

10 Cleared OTC IRS Swaptions Product Scope Current Product Offering Max Expiry Final Settlement Underlying Tenor Index Currency Type Years Method Years (up to) Months Physical USD vanilla swaptions Includes Straddles, cleared as a single trade or separate payer/receiver All enumerations for USD-denominated 3 month LIBOR vanilla interest rate swaps supported, with the exception of: Compounding Forward starting swaps Spreads and stubs 10

11 KRW and INR Product Highlights KRW Vanilla Swap INR Overnight Indexed Swap Maximum Maturity 21 Years* 10 Years* Floating Rate Index KRW-CD-KSDA-Bloomberg* INR-FBIL-MIBOR-OIS-COMPOUND*** Floating Index Tenor 3M 1D Price Alignment Interest Fed Funds Overnight Rate Fed Funds Overnight Rate Variation Margin, Coupons, and Fees USD USD Holiday Calendar Seoul (KRSE) Mumbai (INMU) Settlement Convention USD will be settled on a next day (T+1) basis USD will be settled on a next day (T+1) basis Business Day Convention Default will be ACT/365.FIXED Default will be ACT/365.FIXED FX Rate KRW KFTC18 (KRW02) the KRW/USD rate published at 5:30pm Seoul time on Reuters Page KFTC18 INR.RBIB (INR01) INR/USD rate reported on Reuters RBIB screen at about 12:30pm Mumbai time ** Refers to the 91 day certificates of deposit set by the Korean Financial Investment Association and published by Bloomberg *** Reference rate equal to the daily overnight Mumbai Inter-Bank Outright Rate ( MIBOR ), as published by the Fixed Income Money Market and Derivatives Association of India (FIMMDA) as of 11:45 a.m., India Standard Time on that Mumbai Banking Day. * Tentative maturity target; dependent on liquidity of curve instruments. 11

12 COP, CLP, CNY Product Scope Launch Planned for H Chilean Peso Interest Rate Swap Columbian Peso Overnight Indexed Swap Chinese Yuan Interest Rate Swap Maximum Maturity 25 years 20 years 10 years Floating Rate Index CLP-TNA (Indice Cámara Promedio) COP-IBR-OIS-COMPOUND CNY-CNREPOFIX=CFXS-Reuters* Settlement Currency & Convention USD (T+1) USD (T+1) USD (T+1) Price Alignment Rate Fed Funds Overnight Rate Fed Funds Overnight Rate Fed Funds Overnight Rate Variation Margin USD USD USD Coupons and Fees USD USD USD Holiday Calendar Santiago (CLSA) and New York (USNY) Bogotá (COBO) and New York (USNY) Beijing (CNBE) and New York (USNY) Business Day Convention ACT/360 ACT/360 ACT/365.FIXED Payment Frequency Up to 18 month tenor = Zero Coupon (1T) 2Y+ = Semiannual (6M) Up to 18 month tenor = Zero Coupon (1T) 2Y+ = Quarterly (3M) Quarterly (3M) Payment Lag 0D 0D 0D FX Fixing to Convert Coupon to USD CLP.DOLAR.OBS/CLP10 COP.TRM/COP02 CNY.SAEC (CNY01) FX Fixing Offset -2D -2D -2D * Tentative maturity target; dependent on liquidity of curve instruments. 12

13 OTC FX Clearing

14 Global FX Clearing Solution The broadest and most capital efficient FX clearing solution to meet your needs The broadest global FX product scope across OTC and listed products: - Live 12 cleared NDF pairs - Live 26 cleared G10 NDF pairs - Q cleared Cash-Settled Options Pairs OTC Non- Deliverable Forwards 12 main contracts - Live 73 exchange listed Futures - Live 26 exchange listed Options on Futures Portfolio Margining OTC FX vs FX Futures* Industry leading risk management and support of the >$4.5 billion CME Clearing Guaranty Fund OTC FX Options G7 Single Guaranty Fund OTC G10 NDFs (26 contracts) Unparalleled portfolio margining opportunities between cleared FX products and our market leading exchange listed FX Futures and Options, with NDF margin reductions of up to 90% against emerging market futures and 56% against G10 futures* Portfolio Margining Streamlined onboarding process with automated account setup for clients who already have IRS or CDS clearing accounts Real time clearing in all time zones, offering the ability to cleared trades 23 hours and 45 minutes per day, five days per week Full transparency with direct access to all account-level reports on position valuation, initial margin, and trade life cycle events Exchange Listed Futures and Options ~ 100 products CME FX Link Basis- FX Spot /Futures *Subject to regulatory approval 14

15 FX Forward Product Overview The Largest FX forward offering: 38 Forward Products 12 OTC FX Non-Deliverable Forwards* Brazilian Real Philippine Peso Malaysian Ringgit Indian Rupee Korean Won Chinese Renminbi Indonesian Rupiah Taiwan Dollar Chilean Peso Colombian Peso Peruvian Nuevo Sol Russian Ruble 26 OTC FX G10 Forwards ( Cash Settled Forwards ) The offering covers all the liquid pairs Risk Management: Offers portfolio margining between 12 NDFs, 26 G10 NDFs and 7 OTC FX options As of FX options launch in October, move to blended SVar + HVar margin model will allow for consistent margin levels, SVar component typically is more conservative during periods of low volatility preventing large margin calls during periods of volatility Operations: Submission of trades open at 7pm ET Sunday until 6:45pm ET Friday Participant s choice of submission method: API directly to CME, Traiana, Markit or BB Vcon Simple netting available allows trades to be cancelled once they ve been cleared if desired *All settlements in USD for NDFs 15

16 OTC FX Cost Pressures Current State of FX NDF Clearing Currently, no FX NDF clearing mandate has materialized in any jurisdiction globally However, cost pressures related to UMR will likely be a driver for OTC FX Clearing rather than a mandate OTC FX products impacted the most by these cost pressures in the short-term are FX Options and NDFs In addition, the relative simplicity of FX NDFs offer greater short-term opportunities for an efficient cost-effective cleared solution Cost Pressure Non-Cleared CME OTC Cleared Notes Non-Cleared Margin Rules Leverage Ratio (SACCR) CVA Liquidity Coverage Ratio Non-cleared margins are higher than CME due to (a) HVAR vs ISDA SIMM (b) Lack of CCP Netting Efficiencies Cleared exposures benefit from 29% lower capital requirements Regulations do not require CVA on centrally cleared trades CCP netting efficiencies reduces requirements RWA Credit Lines Infrastructure Lower RWA at QCCP (2% Risk Weight) versus Bi- Lateral (20%-100% Risk Weight) Cleared exposures do not consume bi-lateral credit lines Connect to CME through existing infrastructure, consistent valuation, bankruptcy remote collateral 16

17 FX Options Product Overview The most capital efficient FX Option offering: 7 Products Product Scope 7 currency pairs: USDJPY, EURUSD, GBPUSD, AUDUSD, USDCHF, USDCAD, EURGBP Plain vanilla European style options Settlement will be cash in the quote currency Fixing Rate is the WM/R 10am New York Options out to 2 year expiry and including any strike Clearing Efficiencies Exercise will be automatic at 10am New York Will be cleared within the base risk waterfall of CME Inc. alongside the existing CME FX Futures and OTC FX Contracts Portfolio Margining of OTC FX options versus the existing OTC FX offering of 12 NDFs and 26 CSFs will be supported immediately Trade submission will be platform agnostic via CME ClearPort including interfaces such as Traiana, Bloomberg-VCON and Markitserv 17

18 FX Options - Efficiencies via Netting Margin Efficiencies Clearing allows participants to face a single counterparty rather than multiple; allowing for margin optimization by netting all open exposure Portfolio Margining of FX options versus the existing CME FX clearing service for 12 NDFs and 26 CSFs will be available from day 1 Portfolio Margining of OTC cleared FX products versus the CME Listed FX Futures & Options Complex will also be supported* Capital Efficiencies Clearing enhances the ability to compress off-setting positions and so reduce the number of open line items and gross notional. Portfolios cleared at CME can be netted on a nightly basis during the EOD clearing cycle based on the chosen netting option The following attributes are considered for netting: Currency Pair Put/Call Expiry Date Cutoff Time Strike o o Due to the above matching criteria, the expectation is that offsetting trades will be executed with an upfront fee to account for the off-market strike This allows clients the ability to get the best price from multiple dealers *Subject to regulatory approval 18

19 Products Supported OTC FX Forwards Product coverage: 38 FX Non Deliverable and Cash Settled Forwards OTC FX Cash-Settled Forwards OTC FX Cash-Settled Forwards OTC FX Non-Deliverable Forwards EUR/USD USD/PLN Brazilian Real AUD/USD USD/ZAR Philippine Peso 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 19

20 Capital & Margin Efficiencies

21 Interest Rate Swap Compression at CME Group Creating Capital Efficiencies for Participants: Over 755k line items and $36 trillion in notional reduced to date, and helping decrease open interest by over 30%. Client Compression: CME conducted our first multilateral non-member compression cycle on April 11 th in MXN IRS with Banorte Mexico, and non-members have participated in two trireduce cycles since then. BRL Multilateral Compression: Conducted the first-ever cleared multilateral compression cycle in BRL CDI on Sept. 22 nd $60.0 $50.0 Interest Rate Swap Compression at CME Group Cumulative Trillions USD Equivalent Remaining Open Interest Total Compression TriOptima $16 Trillion & 472k Lines $40.0 $30.0 $16 $27 $35 + Coupon Blending $20 Trillion & 283k Lines $20.0 $10.0 $23 $19 $15 = Total Compression $36 Trillion & 755k Lines $ YTD TriOptima Compression Cycles Notional Reduced $12.6T $1.3T $1.0T $291B $118B $206 Lines Items Reduced 293k 55k 94k 14k 7k 10k Number of Cycles

22 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

23 Portfolio Margining Unparalleled Margin Efficiencies via the portfolio margining of Interest Rate Swaps versus 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 Scope of the Solution 15 Clearing Members are now live with IRS Portfolio Margining, and over 465 accounts are benefitting from the solution Total Risk Reductions now account for $2.23 billion in initial margin savings on average in 2017 Achieve capital savings across a diverse portfolio of: 19 cleared OTC IRS currencies, including USD Swaptions CBOT Treasury Futures, now including the Ultra Bond CME Eurodollar Futures Fed Fund Futures USD Deliverable Swap Futures Ultra 10 Treasury Futures CME is committed to providing Portfolio Margining between FX NDF and OTC IRS. Indicative analysis suggests potential savings as high as 51% in BRL. 23

24 Swaption Clearing: The Most Capital Efficient Solution Savings Analysis For 8 Portfolios of Swaptions and Swaps Portfolio Margin Savings* 1Y5Y Long Payer ATM Swaption Delta Hedged using Swap 89% 1Y5Y Short Payer ATM Swaption Delta Hedged using Swap 81% 1Y5Y Long Receiver ATM Swaption Delta Hedged using Swap 87% 1Y5Y Short Receiver ATM Swaption Delta Hedged using Swap 81% 2Y30Y Long Payer ATM Swaption Delta Hedged using Swap 88% 2Y30Y Short Payer ATM Swaption Delta Hedged using Swap 82% 2Y30Y Long Receiver ATM Swaption Delta Hedged using Swap 91% 2Y30Y Short Receiver ATM Swaption Delta Hedged using Swap 86% * Savings = 1 Portfolio Margin / (Swaption Margin + Swap Margin). ** Results are calculated as of September Values do not include transaction costs and are subject to change, depending on market volatility. 24

25 Counterparty Netting with Swaptions Clearing enables counterparties to net down exposures that otherwise would be held against each bilateral counterparty, which creates significant margin efficiencies Portfolio # of Trades Margin Uncleared Counterparty $182,489,622 Uncleared Counterparty $64,758,273 Uncleared Counterparty $421,680,284 Uncleared Counterparty $225,687,930 Uncleared Counterparty $320,184,602 Uncleared Counterparty $31,007,151 Uncleared Counterparty $33,604,900 Portfolio # of Trades Margin Single Cleared Portfolio 3,306 $375,959,781 Counterparty netting alone generates margin efficiencies of 78% Uncleared Counterparty $165,404,511 Uncleared Counterparty $148,804,368 Uncleared Counterparty $130,585,625 Total 3,306 $1,706,207,267 25

26 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 26

27 Clearing Online Risk Engine ( CORE ) Margin Tool CME PRODUCTS SUPPORTED CME CORE Capabilities 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 Portfolio/Trade History Incremental Margin Estimator/Delta Ladders Ideal business user solution for Portfolio Margin Savings Analysis Allows firms to calculate their margin for their portfolios by either a portfolio upload or entering 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 Enhanced Analytics includes: Real-Time Positions - Access to CME OTC IRS cleared positions throughout the day providing a simple way to calculate margin requirements and perform what if margin analysis Real-Time Margin Dashboard - Actively updated margin requirements across accounts providing the ability to anticipate overnight funding costs 27

28 Membership and Connectivity Execution & Affirmation OTC Clearing Members

29 Contacts

30 Contacts North America: Deepa Josyula Steve Hurst EMEA: Phil Hermon Stephanie Hicks Asia-Pacific: Shawn Creighton

31 Disclaimer Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each 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 deposited for either a futures or swaps 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 traders cannot expect to profit on every trade. All examples discussed are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. CME Group, the Globe Logo 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 is a trademark 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 brochure has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT and NYMEX rules. Current rules should be consulted in all cases concerning contract specifications. Copyright 2017 CME Group Inc. All rights reserved. 31