Today the Government Securities Clearing Corporation (GSCC), the bond clearing and settlement arm of the Depository Trust and Clearing Corporation (DTCC), offered a closer glimpse at the nirvana of the collateral management industry: cross-margining. It announced that cross-margining between GSCC and the Chicago Mercantile Exchange clearing organization will commence on April 12. The arrangement will enable members of both entities to cross-margin their buy-sell and repo activity in U.S. Government securities against Eurodollar futures and options on futures traded on CME and cleared at CME’s Clearing House.
This is a highly significant development, if only because CME is the largest futures exchange in the United States and Eurodollar futures are the world’s most actively traded futures contract. In 2001, a record 184 million Eurodollar futures contracts changed hands on CME, along with a record 88.2 million options on Eurodollar futures, with a combined dollar value of $272 trillion.
“GSCC is pleased to expand its cross-margining program to include CME,” said Jeff Ingber, general counsel and managing director at GSCC. “This relationship will bolster GSCC’s efforts to achieve two key objectives — enhance the safety and soundness of clearing systems and expand the potential for significant margin savings for participants. These savings are attributable to the magnitude of the U.S. Treasury market and the strong correlation between Government security positions and Eurodollar futures and options.”
“We anticipate that this arrangement will generate savings for our clearing members, while mitigating risk at both clearing organizations,” said Kim Taylor, managing director, risk management at CME. “In addition to those capital efficiencies, the benefits of the cross-margining program will be applied automatically to those firms that participate, requiring no extra work on the part of the back office.”
The cross-margining program is available to firms that are both GSCC netting members and CME clearing members, or that are members of one clearing organization and have an affiliate that is a member of the other. Once the member signs (together with its affiliate, if applicable) a Cross-Margining Participant Agreement, the cross-margining will take place automatically, without further implementation requirements on the part of the member. Thus, the use of the cross-margining facility, which can reduce a participating member’s margin requirement, will be virtually transparent to members from an operational standpoint.