Innovation in product development, open access and full margin transparency for buysiders and sellsiders were some of the attributes that set CME Clearing apart from its competitors over the last year, according to market participants. That helped the firm land the 2012 Clearinghouse Of The Year award from the editors of Derivatives Week/Derivatives Intelligence.
The advance made by CME in margin efficiencies were a standout for many observers. The firm made the first move among clearinghouses to offer portfolio margining for house accounts between Eurodollar and treasury futures with cleared over-the-counter interest rate swaps. According to the firm, the service produces up to 85% of margin savings. It plans to launch portfolio margining for customer accounts later this year.
CME also launched CME CORE. The online tool, which is the first of its kind, allows firms to view initial margins and positions while also calculating portfolio margining savings for interest rate futures and cleared over-the-counter interest rate swaps. The tool also supports cleared OTC credit default swaps, and plans to support delta laddering and cleared OTC fx, amongst other areas.
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“It gives you the ability to load in your portfolio and see analytics about what the sensitivities are and what the margin calculation would be. You can then add to the portfolio, see what the changes would be, i.e. you can get an estimate if you brought your futures into your portfolio—what would be the risks, what would be the right futures and swaps to pair up to get an optimal margin calculation,” said Kim Taylor, president of CME Clearing.
Open access was another area praised by buysiders and sellsiders, with 11 affirmation platforms and swap execution facilities now connected to CME Clearing. Market participants can therefore negotiate, execute and submit trades though multiple venues to CME Clearing. “There is a lot of transparency around margin amount, transparency around the access that you have to validate margins yourself. There is a lot of access to the marketplace that is hooked up to the platforms of choice that people use in the bilateral market currently,” said Taylor. “We are in the process of working with additional platforms to hook up to so that you will be able to execute how you want, wherever you want.”
“We are focused on achieving capital efficient solutions that reduce costs associated with clearing OTC in the U.S.,” said Jeff Gore, head of clearing at Wells Fargo. “CME continues to solicit our feedback, incorporates that into their solution and takes into account the needs of both the buyside and sellside—which translates into real efficiencies.”
Another key for buysiders has been the speed of execution to clearing confirmation, and CME has responded by adopting straight-through processing and real-time confirmation. It has also established a team to support clients who are beginning to clear. “We have done transactions in seconds from execution to getting the confirmation you have a cleared transaction. This has been very valuable to the buyside,” added Taylor.
Like other clearinghouses, CME has expanded its range of products and acceptable collateral, while also strengthening its customer protections. The firm has reduced the cost of clearing for buysiders by accepting corporate bonds as initial margin for OTC and futures product. CME has also established separate guarantee funds for IRS and CDS, which are sized to cover defaults simultaneously of the two largest futures commission merchants.
In terms of products, CME has expanded its range to seven IRS currencies, 45 CDS index products, 12 non-deliverable forward currencies and seven fx cash settled forwards since mid-2011. Taylor added that she expects CME to expand its product range further later in the year.