CME Group and the Depository Trust and Clearing Corporation (DTCC) are set to expand their existing cross-margining arrangement to offer increased margin savings and capital efficiencies to end users.
Laura Klimpel, Suzanne Sprague
Expected to expand by December, subject to regulatory approval, this proposed enhancement will enable eligible end user clients at CME Group and the Government Securities Division (GSD) of DTCC’s Fixed Income Clearing Corporation (FICC) to access capital efficiencies available when trading US Treasury securities and CME Group interest rate futures that have offsetting risk exposures.
To access end-user cross margining, clients will need to leverage the same dually registered Futures Commission Merchant (FCM) and broker or dealer – as registered with the SEC – at both CCPs.
Aligning enhanced cross-margining for end-user customers with the regulatory timeline for expanded US Treasury Clearing requirements aims to increase the usage of central clearing, which the firms expect to reduce systemic risk.
“Bringing the benefits of cross-margining to the end-user is a critical step in enhancing capital efficiencies across US Treasury market participants,” said Laura Klimpel, managing director and head of DTCC’s fixed income and financing solutions.
“Our ongoing collaboration with CME Group remains focused on extending cross-margin benefits to more customer accounts and eventually, to other products. Doing so will enable even greater efficiency, cost reduction, improved liquidity and increased risk management in the US Treasury markets.”
Read more: A look into the centrally cleared future
The proposed arrangement will see FICC designate cross-margin accounts, enabling eligible positions in the account to offset with eligible CME Group interest rate futures.
Participants will also be enabled to direct futures to end-user cross-margin accounts throughout the day, making them available for offset in the cross-margin arrangement.
The firms added that ahead of the regulatory approvals, end-users can work to set up a new account, complete proper program legal documentation and test end-to-end workflows.
“Extending our cross-margining agreement to client accounts is an important milestone in our efforts to make US Treasury markets more efficient for all market users,” said Suzanne Sprague, CME Group chief operating officer and global head of clearing and post-trade services.
“Building on more than 20 years of partnership, we look forward to working with DTCC and regulators to deliver even greater benefits to both cash and futures market participants.”