CME-FICC Cross-Margining Arrangement- FAQs

FICC and CME Clearing each submitted rule changes to their respective regulatory authorities in July 2023, which were approved in September 2023. FICC and CME Clearing intend to implement the enhanced cross-margining arrangement on January 22, 2024.

The information and examples provided in these FAQs are for general informational and indicative purposes only. Such information may not be relied on by any party for any purpose. Any statements in these FAQs, like any statements regarding hypothetical scenarios, are subject to inherent uncertainties. Neither FICC nor CME undertakes to update these FAQs to reflect changes or events that occur after the date of publication. The range of available actions described in this document and the discussion of actions that could be taken in certain scenarios are hypothetical only and not binding on any parties in any forum, including but not limited to FICC, CME or any of its or their affiliates.

Pursuant to the Restated Agreement, “Cross-Margining Participant” “means a Joint Clearing Member that has become, or a Clearing Member that is part of a pair of affiliated Clearing Members each of which has become, a participant in the cross-margining arrangement between FICC and CME established pursuant to this Agreement. In the latter case, the term “Cross-Margining Participant” shall, where the context requires, refer collectively to the pair of Cross-Margining Affiliates. CME-FICC Cross Margining Arrangement Financial Markets. Forward.™

The client testing process is available today to allow clearing members to become familiar with the daily operation of the enhanced program within CME’s test environment, as well as view mock-up margin reporting within FICC’s and CME’s test environments.

Under the current, as well as the new CME-FICC Cross-Margining arrangement, eligible participants include (i) entities that are clearing members of both CME and FICC/GSD and (ii) pairs of clearing members where one is a clearing member of CME and an affiliate is a clearing member of FICC/GSD (or vice versa).

The new arrangement will require new agreements for which signatures will be required by all parties (including currently eligible participants). Copies of the new agreement will be distributed to current participants in September 2023. New participants should contact their Relationship Managers at FICC and CME Group to discuss eligibility and obtain the necessary agreement.

The new CME-FICC Cross-Margining arrangement looks to add CME Group listed interest rate futures products, Ultra-10, Ultra-Bond, Fed Funds, and SOFR, and the flexibility to add future products as markets evolve. Please note, however, that the addition of other products into the program will require applicable governance and model validation approvals and possible regulatory filings.

FICC-Cleared US Treasury Notes and Bonds that have a time to maturity greater than 1 year,1 resulting from a buy/sell or repo/reverse repo transaction, will be eligible for the new arrangement. Other Treasury securities, including When Issued Securities prior to settlement date and TIPS, may be considered for inclusion in the program in a later phase.

No changes are required to any clearing members' settlement accounts to accommodate participation in the enhanced arrangement.

No changes to the acceptable collateral schedules at either clearing agency are anticipated due to the enhancements to the CME-FICC Cross-Margining arrangement.

No, neither CME Group nor FICC envision charging separately for participation in this arrangement.

FICC and CME Group believe that these enhancements will encourage greater utilization of centralized clearing, thereby facilitating systemic risk reduction.

Yes, at CME Clearing, the operational process for the new arrangement will be modernized to allow additional flexibility in managing the program by allowing clearing members to select which interest rate futures to include in the program.

At CME Clearing, the arrangement will become ‘actively’ managed by clearing members, versus the ‘passive’ approach today. A new separate eligible position sub-account will be available for clearing members where they can choose which interest rate futures to include for potential offset with their FICC cleared positions.

At FICC, Clearing Members will not need to actively manage which FICC eligible positions are included for purposes of cross-margining and will see results reported in their daily margin requirements.

Yes, in the new arrangement, to the extent applicable, the margin reductions will be calculated during both intra-day and end of day processing cycles. Whereas, currently, the margin reductions at each clearing agency are only calculated once daily during the end of day process.

Please note that for purposes of FICC’s formal noon intraday margining process, FICC will look at all novated, unsettled positions (including newly traded positions since the last margin cycle) when determining positions eligible for cross-margining.

Under the new arrangement, FICC and CME Clearing will each treat a participant’s relevant products as a single portfolio (a “Combined Portfolio”). Treatment as a Combined Portfolio provides the ability for the FICC and CME Clearing to assess risk at a security level and eliminates the need to use separate margin calculations and apply offset classes and conversions of eligible products.

Both CME Clearing and FICC will use their own margin models on the combined Treasuries and futures portfolios, to the extent applicable, and jointly apply a margin savings percentage to each account based on the more conservative result.

Yes, currently on an ad hoc basis FICC and CME Clearing can analyze a hypothetical portfolio under the new arrangement. Please note, however, that Clearing Members should not rely upon the results of the hypothetical portfolios, as neither CME Clearing nor FICC guarantee the same results in an actual portfolio. Additionally, the FICC calculator, enabling members to run various scenarios on cash positions paired against the latest available position file provided by CME Clearing is anticipated to be available in November 2023.

Each participating Clearing Member at CME will be required to establish a dedicated crossmargin position account for any futures eligible under the program.

Futures eligible for the program can be moved into this position account either by trading directly in this account or by allocating position transfers or give-ups to CME Clearing.

Once in this account, these futures positions will be offset against FICC positions and margined as if the positions were a combined portfolio, as set out above in FAQ No. 8, to determine any potential margin reductions.

CME is engaged with several Clearing Members to evaluate the potential for tools which could help automate and expedite the determination of any futures positions to move into these CME Clearing accounts.

FICC will determine which eligible positions within the clearing member’s FICC/GSD account are available for the CME-FICC cross-margining arrangement and thus no affirmative determination by the clearing member is required.

Yes, initially, CME Clearing will create a report of equivalent CME Group Treasury positions to offset FICC eligible positions on a daily basis. Clearing members may use this report to determine transfers of futures into the CME Clearing cross-margin position account.

CME Group has also built a “rules-based” tool to help streamline identification and transfer of interest rate futures into the cross-margin position account which is available through the CME CORE platform.

As part of a future phase deliverable, CME Clearing, with assistance from FICC, is exploring a margin optimizer to further minimize risk and streamline the transfer process for the arrangement.

No, as described above, cross-margining is only available for house (proprietary accounts) of (i) entities that are clearing members of both CME and FICC/GSD and (ii) pairs of clearing members where one is a clearing member of CME and an affiliate is a clearing member of FICC/GSD (or vice versa).

However, increased eligibility for participation in this program is being contemplated for a future phase subject to regulatory approval, and both CME Group and FICC would be receptive to requests for access in order to help us gauge and prioritize future efforts.

Yes, the implementation date of the enhanced program is January 22, 2024 at which point the current arrangement will no longer operate and the new enhanced arrangement will replace it and be the only one available. Both CME and FICC issued advisories (FICC issued an Important Notice on December 5, 2023) to members providing notice of the January 22, 2024 implementation date.

In order to participate, all eligible participants, including those that are already participants in the current arrangement, will need to execute a new common member and/or affiliate member agreement, as applicable.