CME Archives - The Industry Spread

CME Launches ESG Product With Similar Return Profile to the S&P 500 Index

October 15, 2019 by Ricardo Esteves Leave a Comment Filed Under: Industry News Tagged: BTIC, CME, ESG, S&P 500

The world’s leading and most diverse derivatives marketplace is set to launch E-mini S&P 500 ESG Product Index futures, to be made available for trading on Nov. 18, 2019, pending regulatory review. These index futures are a new risk management tool that aligns with environmental, social and governance (ESG) values.

Tim McCourt

Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products, said: “A growing number of institutional investors and asset managers have incorporated sustainable investing objectives into their strategies. Our new futures contracts will allow market participants to gain price exposure to an index that closely tracks the performance of the S&P 500, while adhering to ESG principles. This is another example of how CME Group is not only meeting the changing risk management needs of our customers in an evolving global marketplace, but also offering choices that allow for the alignment of investment decisions with personal or institutional values.”

Reid Steadman, Global Head of ESG Indices at S&P Dow Jones Indices, commented: “We’re pleased that CME Group has developed E-mini S&P 500 ESG Index futures linked to our S&P 500 ESG Index. Investors are no longer simply viewing ESG indices and benchmarks as niche market tools, but are increasingly integrating ESG metrics to manage their core portfolios. We believe demand for innovative ESG index-based products, especially in the U.S. and Europe, will continue to grow and become more mainstream as market participants seek to better align their sustainability and investment goals.”

As a broad-based, market-cap-weighted index that is designed to measure the performance of securities meeting sustainability criteria, while maintaining similar overall industry group weights as the S&P 500, the ESG index’s new contracts will complement CME Group’s suite of equity index futures and options contracts, including its existing E-mini S&P 500 futures and options and Micro E-mini S&P 500 futures.

E-mini S&P 500 ESG Index futures will be cash-settled and will be subject to the rules and regulations of CME. As for benefits, the new contracts provide access to a new derivative solution for responsible investing, allowing investors to align their financial goals with environmental, social, and governance values. In addition, it allows to save on margin offsets with other equity index futures, and provides flexible execution, including Basis Trade at Index Close (BTIC) or block trades, offers multiple ways to find liquidity. CME expects the contract to obtain a similar return profile to the S&P 500 Index with the bonus of integrating ESG values.

Allan Aldridge Parts Ways with CME Group’s NEX

October 15, 2019 by Karthik Subramanian Leave a Comment Filed Under: Industry News Tagged: Allan Aldridge, CME, NEX

Allan Aldridge, the head of tax for CME Group’s NEX recently parted ways with the firm to join another UK based investment and financial service provider. The move was made public via changes made to Allan’s LinkedIn profile. Allan had been serving as head of Tax at NEX for nearly 3 years now having taken up the role in December 2016.

NEX Group Plc was formerly known as ICAP Plc, a UK based business inter-broker dealer known for its electronic financial markets and post-trade business focused on financial institutions. The firm was listed in London stock exchange until it was acquired by Chicago based exchange operator CME Group Inc. While he took on his last role in December of 2016, he has been a part of the firm for nearly a decade now having joined the firm while it was still known as ICAP Plc back in 2009 in the role of international tax manager.

During his decade long tenure at the firm, he has been promoted a total of three times. He was first promoted to the role of head of international tax and was then promoted to role of head of tax for UK and EMEA region and finally to role of global head of tax. Allan started his career at Deloitte back in 2004 and served at the firm for four years during which he gained much of his knowledge and experience in handling accountancy services.

To those unfamiliar with the firm’s name – Deloitte is one of the Big Four accounting organisations alongside KPMG, Ernst & Young, Deloitte and PWC and is also the largest professional service network in the world by revenue and number of professionals. Having parted ways with CME Group’s NEX, Allan has moved on to take up the role of Chief Financial Officer at FCFM Group – a West London based financial service provider popularly known for its principal investing service.

In his new role as Chief Financial Officer at FCFM Group, Allan is responsible for handling the firm’s financial operations namely tracking cash flow both inside and outside the firm and analyzing the firm’s financial strengths and weakness to create a financial plan that will help the firm in its growth efforts and also aim at boosting revenue. It should be noted that recent headlines stated that UK based Aquis Exchange PLC has been working with CME Group to acquire NEX Exchange one of the subsidiaries of NEX Group in a deal worth nearly 2.7 Million GBP while CME group retains most of the other service offerings under NEX Group label namely – inter-broker dealer, matching and settlement services. Reports stated that both parties agreed upon the deal for sale of exchange for cash consideration of 1 GBP but the same is still subject to FCA approval.

Source:

https://www.financemagnates.com/executives/moves/tax-head-allan-aldridge-leaves-nex/

CME Head Weighs in on SWAP Regulation Standoff

August 16, 2019 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: CCP, CFTC, CME, ESMA, FIA, G20, NASDAQ, swap

Terry Duffy is the Chief Executive Officer (CEO) of the CME Group and he was the latest guest on the Futures Industry Association (FIA) podcast entitled FIA Speaks.

Walt Lukken, FIA’s President and CEO hosts the podcast. On the podcast, Lukken asked Duffy about the EU’s plan to allow its regulators to examine certain systemically risky transactions outside their geographical jurisdiction and demand approval of said transaction.

The plan has caused an uproar in the US, which said global swaps regulation which has gone through a transformation which started at the G20 meeting in 2010 in Pittsburgh.

At that meeting, global powers agreed to a set of guiding principles in regulating swaps; among those principles was deference, meaning each regulator would stay out of other’s jurisdiction.

Primarily, the G20 agreed to move swaps from primarily trading over the counter to trading through a central clearinghouse (CCP).

Now, the EU is threatening to insist on having veto power over transactions which occur outside its jurisdiction, in order to examine the financial strength of the CCP in the transaction.

Here is part of a story in the Wall Street Journal from 2018, “In a draft law published in June last year, the European Commission, the bloc’s Brussels-based executive, proposed granting powers to an EU agency in Paris, the European Securities and Markets Authority, to vet overseas clearinghouses. Under the proposal, which needs to be ratified by the European Parliament and EU governments, ESMA would jointly supervise foreign clearinghouses with the local supervisor and the European Central Bank, including through on-site inspections.”

“There is legislation currently that his passed in Europe that would allow their regulators to potentially- the rules are still being written- but potentially to regulate foreign CCPs, including the CME’s clearinghouse,” Lukken said.

In his response, Duffy noted that he and Lukken recently both testified in front of Congress on this issue and there was bi-partisan opposition to Europe’s plan.

“The comments being made coming out of that hearing and that were being made by both sides of the aisle at that hearing were fairly powerful,” Duffy said, “In all the years I’ve been in this business, I don’t think I’ve ever seen a Congressional hearing with its members being so adamant and involved in reminding its European counterparts this cannot happen and you will not oversee the US financial industry.”

Duffy noted that the new Chair of the Commodities Futures Trading Commission Heath Tarbert recently wrote an oped which touched on this issue.

“He has a huge job today; he has to oversee what Congress implemented which is putting these products into a CCP. I think it’s going to be very difficult for anybody in the European Union or anyone else to try to pull that jurisdiction out of the United States into theirs,” Duffy said.

Duffy concluded by striking a hopeful term, “I feel very comfortable- as comfortable as you can feel Walt when you’re dealing with Washington, you’ve been there a lot longer than I- that we will ultimately come up with a resolution both for the United States and the European Union.”

On the previous podcast, Lukken had Steve Maijoor, the head of the European Securities and Markets Authority, and he offered the perspective on this issue for Europe, “Relying on foreign regulation and regulators will continue to be very important, but in some cases, as you identified when there are systemic risks, in those cases, you want better tools from a European perspective, and making sure that the risks from a European perspectives are- that we have the information on that and if there is a concern we can address that from a supervisory perspective.”

The CME Group formed when the Chicago Board of Trade and the Chicago Mercantile Exchange, merged; it is a publicly traded company itself which currently trades on the NASDAQ under the symbol CME.

The FIA is, “the leading global trade organization for the futures, options and centrally cleared derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C. FIA’s membership includes clearing firms, exchanges, clearinghouses, trading firms and commodities specialists from more than 48 countries as well as technology vendors, lawyers and other professionals serving the industry,” according to its website.

Leverage Ratio Examined for Derivative Trading

August 6, 2019 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Basel III, CFTC, CME, E-mini S&P 500

The Basel leverage ratio has caused banks to reduce their clearing activity for E S&P 500 E-mini futures.

In April 2019, the Commodities Futures Trading Commission’s (CFTC) Office of the Chief Economist (OCE) put out a white paper entitled, “When the Leverage Ratio Meets Derivatives: Running Out Of Options?”

In the paper they described the Basel rules and the effect, “In the wake of the global ﬁnancial crisis of 2008–2009, Basel III introduced a more comprehensive set of capital and liquidity requirements for banks in order to address shortcomings in the pre-crisis capital framework and improve the resilience of the ﬁnancial system. In addition to higher standards for the risk-based capital ratios and the credit quality of capital, the Basel committee also issued the Basel III leverage ratio framework as a simple, transparent, non-risk based approach to pair with the risk-based standards.” The paper stated, “Though US banks have long been subject to a less comprehensive leverage ratio that requires capital only against on-balance-sheet assets, Basel III expands it by including oﬀ-balance-sheet exposure for derivatives and a few other businesses in the leverage calculation. Therefore, the Basel III leverage ratio can signiﬁcantly increase the capital requirement for banks’ derivatives activities.”

Richard Haynes and Liphong McPhail, who headed the research for CFTC, were the latest featured guests on CFTC Talks where they discussed their findings.

In the show, McPhail and Haynes specifically talked about the E-mini product.

The E-mini is, “An electronically traded futures contract one fifth the size of standard S&P futures, E-mini S&P 500 futures and options are based on the underlying Standard & Poor’s 500 stock index. Made up of 500 individual stocks representing the market capitalizations of large companies, the S&P 500 Index is a leading indicator of large-cap U.S. equities,” according to its description on the CME, where it is traded.

“Our analysis shows that clearing E-mini futures options has shifted in the way we anticipated from institutions more constrained by capital rules to those less constrained.” Haynes said on the show.

He said US banks have seen their clearing business drop from 46% to 36% of the total business recently.

“For example, before January 2015, 46% of all E-mini futures option positions were held in customer accounts at US banks; after the date, this number declines to an average of 36.5%.” The paper stated. “By contrast, during that same period, customer positions in E-mini futures options cleared through EU banks, which are subject to a lower leverage ratio, increased from 38.6% to 47.9% of the total.”

The paper further noted, “Using daily positions of clearing members and their customers on S&P500 E-mini futures options, we test the following four hypotheses when the public disclosure of the leverage ratio became mandatory in January 2015: (1)banks lose market share to nonbanks; (2) US banks lose market share to European banks; (3) banks’ clearing activities shift away from customer accounts to house accounts; (4) low-delta options are affected most by the leverage ratio,”

CME Group’s Terry Duffy to Appear Before the U.S. House Committee on Agriculture Subcommittee to Discuss Impact of E.U. Foreign Clearinghouse Regulation on U.S. Futures Markets

June 30, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: agricultural products, Agriculture Subcommittee, CME, CME group, energy, equity indexes, Foreign Clearinghouse Regulation, foreign exchange, futures markets, Interest Rates, trademarks

CHICAGO, June 26, 2019 /PRNewswire/ — CME Group Chairman and Chief Executive Officer Terry Duffy will appear before the U.S. House Committee on Agriculture Subcommittee on Commodity Exchanges, Energy and Credit today to discuss the potential implications of recent European Union (E.U.) legislation that could grant sweeping new regulatory power to European regulators over U.S. futures markets.

“The new rules proposed by the E.U. now undermine the equivalence agreement reached three years ago after extensive analysis and negotiations, and pose a direct challenge to the authority of Congress and the CFTC to regulate U.S. futures markets overall,” said Duffy.

Terry Duffy, CEO of CME Group

“Rather than attempting to override the capable and vigilant regulatory regime in place here, E.U. regulators should work cooperatively with the U.S. to build a coordinated global regulatory framework. Without deference and cooperation, global markets will face decreased liquidity, increased volatility and higher prices for all market participants. It will place higher costs on farmers, end users and producers globally who use U.S. markets to hedge risk,” he said.

The hearing is scheduled for 10 a.m. Eastern time in the Longworth House Office Building. Duffy’s written testimony will be available on www.cmegroup.com at that time.

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and, E-mini are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of 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. BrokerTec, EBS, TriOptima, and Traiana are trademarks of BrokerTec Europe LTD, EBS Group LTD, TriOptima AB, and Traiana, Inc., respectively. Dow Jones, Dow Jones Industrial Average, S&P 500 and S&P are service and/or trademarks of Dow Jones Trademark Holdings LLC, Standard & Poor’s Financial Services LLC and S&P/Dow Jones Indices LLC, as the case may be, and have been licensed for use by Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.

Yi Gang: Welcome address – 11th Lujiazui Forum

June 24, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: BRICS, CCP12, CIPS, CME, CPC central committee, ETF, PBC, SGE

Honorable Vice Premier Liu He, Secretary Li Qiang, Mr. Zhou Xiaochuan, Ladies and Gentlemen,

Vice Premier Liu He has just elaborated in his speech on the triangular framework in the economy made up of supply, demand and the financial system. He has underscored the importance of following market-oriented and law-based reform approaches and drawing on international practice to promote the healthy development of the stock market, particularly the STAR Market. Also he has put forward requirements on accelerating the development of Shanghai as an international financial center, which are highly instructive as to what we should do in the financial field to provide support. Next, in line with the theme for this forum “Accelerating the International Financial Center Development and Promoting High Quality Economic Growth”, I want to give my opinions from the following three aspects.

First, impressive progress has been achieved in the development of Shanghai as an international financial center.

1. The financial market system has been undergoing improvement, featuring more of the essential factors. So far, there have been all types of major financial markets in Shanghai, such as the stock market, the bond market, the money market, the foreign exchange market, the commercial paper market, the futures market, the gold market and the insurance market, with trading volumes in quite a number of varieties ranking high globally.

2. The system of financial institutions has further grown so that the influence of Shanghai as a financial center has risen significantly. In recent years, as a host of important financial institutions or organizations have come to be based in Shanghai, such as the BRICS New Development Bank, the Global Association of Central Counterparties (CCP12), the Cross-Border Interbank Payment System (CIPS), the China Insurance Investment Fund, and the National Internet Finance Association of China, the radiant effect and influence of Shanghai’s financial industry have been enhanced remarkably. As shown by the latest two editions of the Global Financial Centres Index (GFCI) released by Z/Yen, a British think-tank, Shanghai ranks fifth among the world’s financial hubs.

3. The progressive opening-up of the financial sector has contributed significantly to the city’s international competitiveness. Shanghai has become home to a large number of foreign-funded financial institutions in China. With the financial sector opening up wider and wider, the Shanghai-Hong Kong Stock Connect, the Shanghai Gold Exchange international board, the Bond Connect and crude oil futures have been introduced successively; the interbank bond market, foreign exchange market and money market have been opening up with quickened pace; and pilot programs, such as overseas RMB investment and lending funds and cross-border exchange-traded funds (ETFs), have been launched successfully. Shanghai has become one of the cities in the world where financial products and business categories are most diversified and concentrated.

4. Financial reform and innovation have been pushed forward in an all-round way, with financial business innovation increasingly gaining momentum. Shanghai has pioneered many fundamental measures in the reform and opening-up of the financial sector. Among others, a series of pilot financial reform measures taken in the Shanghai Pilot Free Trade Zone have been replicated and applied nationwide.

Second, the People’s Bank of China (PBC) will implement resolutely the decisions and arrangements of the Communist Party of China (CPC) Central Committee and the State Council to strongly support Shanghai accelerating the international financial center development.

In January 2019, to fully implement the important instructions that General Secretary Xi Jinping had given during his inspection of Shanghai last November, with the approval of the State Council, the PBC issued in collaboration with eight ministries the Action Plan for Shanghai International Financial Center Development (2018-2020), which sets forth key tasks and the roadmap for the undertaking. Going forward, the PBC will wholly support Shanghai’s endeavor to complete the three major tasks entrusted by the CPC Central Committee in the new era. The priorities are as follows.

1. We will support the establishment of an integrated RMB and foreign currency account system in the new area of the Shanghai Pilot Free Trade Zone, and put into place a more convenient system for the administration of cross-border funds.

2. We will continue to improve the interbank foreign exchange market and bond market, broaden the spectrum of foreign exchange options products, expand market participants, and support the development of “Silk Road” themed bonds.

3. We will support the cooperation between the Shanghai Gold Exchange (SGE) and the Chicago Mercantile Exchange (CME), and the launch of derivatives based on the Shanghai Gold Benchmark Price on the CME.

4. We will support the establishment of representative offices by international financial organizations, and the establishment of subsidiaries by foreign-funded financial institutions in Shanghai.

5. We will support the establishment of a cross-region platform for financial cooperation in the Yangtze River Delta region, enhance the connectivity of financial infrastructure, and promote the integration of financial businesses across the region.

6. We will support the development of the “G60 Science and Technology Innovation Corridor” driven by the building of Shanghai into a science and technology innovation center, promote the application of Shanghai’s financial opening-up innovative policies to the Corridor, and improve financial services for sci-tech innovation enterprises.

7. We will support the Shanghai Commercial Paper Exchange expanding in the Yangtze River Delta region the use of commercial papers for accounts receivables, and launching the pilot program of expanding the “Discount Connect” business to wider regions.

8. We will support the pilot program in Shanghai lifting the foreign ownership cap in securities firms and fund management companies, and expanding the business scope for foreign-funded financial institutions. We pledge full support for the development of the STAR Market.

9. We will further enhance the functions of the PBC Shanghai Head Office.

Third, the core of Shanghai international financial center development is to make Shanghai the global center of RMB-denominated financial asset allocation and risk management .

During the visit to Shanghai in 2018, General Secretary Xi Jinping noted that Shanghai should strive to strengthen its capacity of allocating global resources in an effort to comprehensively enhance the influence and competitiveness of Shanghai among cities in the world. Vice Premier Liu He stressed in his speech just now that Shanghai international financial center development should serve the overall picture of national strategy and national economic development, promote Belt and Road Initiative and accelerate the economic integration in the Yangtze River Delta. Based on my working experience, I think Shanghai is bound to be an international financial center based on RMB-denominated assets. Therefore, efforts will be focused on developing the following “five centers” to further accelerate the development of Shanghai into an international financial center based on RMB-denonminated asset management and financial market.

1. Developing Shanghai into a center of RMB-denominated financial asset allocation. With RMB-denominated assets incorporated into MSCI Index, Bloomberg Barclay Global Aggregate Index and other major equity and bond indexes widely used across the world, global asset managers, passive and index-oriented ones in particular, will increase allocation of RMB-denominated equity and bond assets. Up to now, over 60 central banks have increased their holding of RMB reserves, which encouraged equity and bond managers’ investment in RMB-denominated assets. This requires Shanghai to quicken up the development of supporting measures for financial market in trading, service and consultation to meet the demand of RMB-denominated asset investors globally.

2. Developing Shanghai into an RMB-denominated financial asset risk management center. With the RMB globalization proceeding, overseas economic entities hold more and more RMB positions and RMB exchange rate becomes increasingly market-oriented. As a result, the overseas entities will face market, liquidity and other risks in asset allocation and fund management, which produces the demand for risk management. Pricing and hedging are two major aspects of risk management. For the first aspect, the financial market in Shanghai should provide accurate product pricing and continuous trading and quotes so that Shanghai could become a major asset pricing center in the world. Meanwhile, the depth of financial market and market liquidity should be enhanced. For the second aspect, efforts should be made to improve risk hedging tools, promote derivative innovation and market development, actively develop derivative products and orderly enhance convertibility of RMB under the capital account, and intensify the interaction between onshore and offshore financial markets.

3. Building Shanghai into a Fintech center. In the future, the growth point for global finance lies in Fintech, which is also the focus of competition among international financial centers. Therefore, we should attach great importance to Fintech development. With the development of science and technology innovation center in progress, Shanghai has bright prospects in Fintech development. The PBC actively supports Shanghai to explore for correct methods and paths for the application of new technologies, such as artificial intelligence, big data, cloud computing, blockchain and e-commerce, in the financial field, so as to seize the commanding heights of Fintech and promote in-depth integration of finance and technology.

4. Building Shanghai into a center of high-quality business environment. The development of an international financial center is inseparable from a sound growth environment. Shanghai should become the birthplace and proving ground of the first-class financial operation rules, financial laws and regulations and other business environment and regulatory standards. Shanghai should also be in the forefront in such aspects as regulatory sandbox tests, financial supervision coordination, comprehensive financial statistics and financial risk monitoring. Effective measures can be extended nationwide.

5. Building Shanghai into a financial talent center. The competition among financial centers are fundamentally the competition of talents. The number of high-end and internationally competitive financial talents is an important index to measure an international financial center. The PBC supports Shanghai to improve its institutional mechanism and development environment for attracting financial talents, to attract, retain and cultivate talents, and to bring together the best financial practitioners in China and the world to Shanghai, hence making Shanghai a place that global financial practitioners yearn for.

I believe that Shanghai will be able to build on schedule an international financial center in compatible with the economic strength of China and the international status of RMB and based on RMB-denominated financial assets, and play a key role in promoting China’s financial reform and opening up, economic transformation and upgrading, and high-quality development.

Thank you!

CFTC Staff Issues Clearinghouse Supervisory Stress Test Report

May 7, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: assessment powers, CFTC, CFTC Staff, clearinghouse, CME, LCH, market shocks, OCE, Stress Test Report

Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk (DCR) and the Office of the Chief Economist (OCE) today issued Stress Test Report, CCP Supervisory Stress Tests: Reverse Stress Test and Liquidation Stress Test, a two-part report that includes the results of a reverse stress test of central counterparties (CCPs) or clearinghouses resources and an analysis of stressed liquidation costs. This is the third in a series of supervisory stress testing exercises and resulting reports on CCPs that CFTC staff has conducted. Previous stress testing reports were issued in 2016 and 2017.

Reverse Stress Test

The reverse stress test analysis included futures and options at CME Clearing and interest rate swaps at LCH Ltd. Both house accounts and customer accounts of all clearing members (CMs) were analyzed, using actual positions as of September 5, 2018.

The purpose of the exercise was to identify combinations of market shocks and CM defaults which would consume pre-funded resources, which include defaulting CMs’ initial margin, CCP committed capital, and guaranty fund. Market shocks were based on four extreme historical dates, as well as scenarios that represent two and five times the moves on these dates.

The results of the reverse stress test indicate that the two tested CCPs would have sufficient pre-funded resources to cover losses even if all CMs with losses defaulted under certain extreme historic 1-day scenarios.

One scenario includes market shocks five times the size of those experienced on the day following the Lehman Brothers bankruptcy announcement; this scenario included, for example, price moves as large as 225 bps in swap rates, and 25 percent in stock index futures. These moves likely exceed possible market risk at the CCPs, and thus may be considered implausible. Under this market scenario, only two firms experienced stress losses greater than initial margin at both CCPs concurrently. If both firms defaulted, the combined shortfall would have been slightly greater than pre-funded resources at both CCPs. As the analysis did not include assessment powers, the CCPs would have access to additional resources not considered in the exercise.

Liquidation Analysis

The analysis of liquidation margin add-ons included interest rate swaps at both CME Clearing and LCH Ltd. Only the 10 house accounts with the largest liquidation margin add-ons as of June 30, 2018 were included.

The purpose of the exercise was to test whether there would have been sufficient pre-funded resources available if the actual costs of hedging and auctioning the portfolio of a defaulting member exceeded CCP estimates. The analysis was not a test of liquidation margin adequacy.

Results suggest pre-funded resources would have been sufficient to cover extreme but plausible market losses plus liquidation expenses for two house accounts even if the actual liquidation costs were double the amount of the liquidation margin add-on. This analysis, like the reverse stress exercise, did not include assessment powers.

CME Group’s Traiana Enhances Credit Risk Hub for FX Prime Brokers

May 2, 2019 by Ricardo Esteves Leave a Comment Filed Under: Industry News Tagged: BrokerTec, CME, CME group, EBS Market platform, FXPB, lifecycle management, NEX, risk control, trade life cycle, Traiana, TriOptima

Traiana has made significant enhancements to its Credit Risk Hub in order to allow FX prime brokers to define trade information in more detail to increase credit risk controls and reduce the risks of credit over-allocation.

The leading infrastructure service for trade life-cycle and risk management solutions offers its Credit Risk Hub for a dual purpose: Designation Notice Manager and Credit Link. The former helps FX prime brokers establish, monitor, amend and terminate FX Tri-Party Agreements with buy-side clients if they default on a trade. The latter is a calculation engine which provides FX prime brokers with end-to-end control of how much credit is extended to buy-side clients.

The enhancements to the Credit Risk Hub beginning this May will include the ability to define which eligible FX instruments, currency pairs and tenors buy-side managers can trade as part of Tri-Party Agreements, which in turn impacts the level of credit extended to them. CreditLink can monitor the additional trade detail in order to provide greater control to prevent overallocation of risk to clients.

Andres Choussy, Chief Executive Officer of Traiana, commented: “The enhancements to our Credit Risk Hub build on our world leading franchise and allow us to act as a central hub for the calculation, distribution and enforcement of credit lines across prime brokers, executing brokers and their end clients.

Mariam Rafi, Managing Director, Americas Head of OTC Clearing, Citigroup, said: “Citi is focused on giving clients enhanced trading flexibility, while prudently managing our credit exposure. Credit Risk Hub’s new enhancements are a key complement to Citi FX PB’s suite of risk management controls and facilitate increased market access for our clients.”

Leah Mallas, Global Head of FXPB and FX Clearing, J.P. Morgan, added: “Control over credit risk is a key concern for us and our clients. Working with Traiana’s enhanced tools, we are able to provide added controls coupled with increased credit, tenor and product scope. This enables more efficient execution of clients’ trading strategies while also strengthening our risk management as an intermediary.”

Traiana is part of CME Group ever since the acquisition of NEX Group with each NEX share being entitled to 500 pence in cash and 0.0444 shares of CME Group Class A common stock. Run-rate cost synergies are expected to touch $200 million annually by the end of 2021.

The £3.9 billion ($4.96 billion) deal allowed CME Group to operate its individual Markets and Optimisation businesses as sub-brands including BrokerTec, EBS, Traiana and TriOptima.

Traiana Provides Central Clearing Connectivity to HKEX OTC Clear for FX Deliverables

January 30, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: business, Central Clearing Connectivity, CME, FX, FX Deliverables, FX trades, HKEX, HKEX OTC Clear, innovative initiative, investment, lifecycle management, market, trade, Traiana

Traiana, a leading infrastructure service which provides trade life-cycle and risk management solutions, today announced that it has provided direct central clearing connectivity to the Hong Kong Exchanges (HKEXs) and Clearing’s OTC Clearing Hong Kong (OTC Clear).

Market participants can now access HKEXs OTC Clear service to clear USD/CNH and USD/HKD FX forward and swaps, vTraiana, a leading infrastructure service which provides trade life-cycle and risk management solutions, today announced that it has provided direct central clearing connectivity to the Hong Kong Exchanges (HKEXs) and Clearing’s OTC Clearing Hong Kong (OTC Clear).ia Traiana’s Clearing Hub (CCP Connect), which provides affirmation, matching and trade processing capabilities.

HKEXs OTC Clear Deliverable FX service can be used to mitigate settlement risk which arises when payments and receipts of different currencies occur at different intervals during a standard bilateral settlement process. The service can also be used to offset settlement exposure with its clearing house cross currency swaps service.

Member banks are now able to clear deliverable FX trades, irrespective of how they were executed, using one of Traiana’s many connectivity and workflow options. Existing Traiana clients and electronic trading venues can enable the HKEX clearing workflow as an add-on to their existing Traiana FX post-trade processing services.

“We are very happy to be working with Traiana,” said Jacky Mak, Head of OTC and FIC Business Development in HKEX’s Clearing Division. “It enhances our ability to connect with the growing number of market participants interested in HKEX’s broad range of services including RMB-related services.”

“As the number of firms looking to voluntary clear FX instruments continues to rise, central clearing connectivity is becoming more and more important to our client base,” said CME Head of Optimization Asia, Guy Rowcliffe. “Our partnership with HKEX, provides the market with an innovative initiative which can be used to address a number of challenges associated with standard bi-lateral trade lifecycle management.”

Traiana is a part of CME Group.

ICE’s Bakkt Crypto Exchange Platform Inks First Acquisition Agreement, To Buy Certain Asset of Chicago-Based Rosenthal Collins Group

January 15, 2019 by Karthik Subramanian Leave a Comment Filed Under: Industry News Tagged: BAKKT, Blockchain, brokerage, CBOE, CME, Cryptocurrencies, Cryptocurrency exchange, financial institutions, financial services, ICE, investment, regulators, Rosenthal Collins Group

Intercontinental Exchange’s cryptocurrency platform Bakkt has signed the company’s first acquisition agreement. Bakkt CEO Kelly Loeffler made the announcement on her official medium blog. The cryptocurrency startup will buy certain assets of Chicago-based futures commission merchant — Rosenthal Collins Group (RCG).

Rosenthal Collins Group established nearly 100 years ago has also sold its customer business of the futures brokerage to London-headquartered commodities broker Marex Spectron. RCG has recently expanded its client base to 14,000 accounts while deepening its introducer broker network.

Bakkt’s acquisition of RCG’s asset is the latest push towards positioning itself towards more regulated markets. According to Bakkt CEO, the RCG’s system and expertise would improve the company’s risk management and treasury operations. This acquisition is in line with other US cryptocurrency operators including Coinbase which puts them in a firmer regulatory footing with regulators. It further helps the crypto firm to position themselves up to offer a broader range of crypto-based financial products.

Bakkt CEO Kelly Loeffler stated in her blog:

“It will enhance our risk management and treasury operations with systems and expertise. Other aspects of the transaction will contribute to our regulatory, AML/KYC and customer service operations as we help enable digital asset acceptance by bringing more choice and control to buyers and sellers,”

Georgia based ICE last month said that the Bakkt would launch the first physically delivered Bitcoin futures in the last week of January. But now it has been delayed for the third time with no specific date of launch. The initial launch was set for November 2018.

Other established exchange like Cboe and CME offers Bitcoin futures but are cash settled, in which the actual cryptocurrency doesn’t change hands.

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