Cleared OTC FX Product Overview

Transcription

1 Cleared OTC FX Product Overview

2 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 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 2

3 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 3

4 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 4

5 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 to get the best price from multiple dealers *Subject to regulatory approval 5

6 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 6

7 Clearing Workflows: On-SEF vs. Off-SEF Trade workflows will differ depending on where the trade is executed: On-SEF: Clearing Firms will pre-approve credit on all trades executed on SEFs Off-SEF: Clearing Firms will choose to set an account to one of the below options: CME Hosted Credit Limits in RAV Claim Workflow CME will allow Firms to set limits on accounts Firms will have the ability to view and edit limits All trades that breach limits will be rejected Clearing Member Firms must explicitly accept or reject trades after submission to CME Clearing. CME will accept or reject trades after either: - Both FCMs have accepted the trade - A single FCM has rejected the trade 7

8 On-SEF Workflow with Pre-Approval Client ED 2 2 SEF Trade receives credit pre-approval from FCM (precedes this workflow) prior to submission to CME Client executes trade with Executing Dealer (ED) on SEF SEF sends trade to CME for Clearing CME Clearing House Product Account Credit After validating product, account and applying credit limits set by CME, CME accepts swap for clearing CME sends Cleared notification to SEF which displays trade status to principals CME sends a Clearing Confirmation to FCMs Clearing Member (Client) Clearing Member (ED) *Pre-approved trades do not go through request consent workflow. 8

9 Off-SEF Workflow: CME Hosted Credit Limits in RAV Client 1 Affirmation Platform 3 ED 1 Bilaterally agreed trade is confirmed / matched on Affirmation Platform and sent to CME ClearPort CME Clearing 2 Product, account and RAV limits are validated cleared 2 RAV Product Account Credit 3 CME sends Cleared notification to platform and Clearing Members CME Clearing House 3 3 Clearing Member (Client) Clearing Member (ED) *Pre-approved trades do not go through request consent workflow. 9

10 Off-SEF Workflow: Claim Workflow 1 Client Affirmation Platform 3 6 CME Clearing ED 1 2 Bilaterally agreed trade is confirmed / matched on Affirmation Product, account and CME limit on CMF are validated successfully 2 3 Pending Clearing notification sent to Affirmation Platform Product Account Credit 4 Clearing Consent messages sent to both Clearing Members 4 CME Clearing House Clearing Member Clearing Member (Client) (ED) Clearing Members of both parties accept the trade CME sends Cleared Notification to platform and Cleared Confirmations to firms 10

11 Bunched Order Workflow 11

12 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. 12