OFR_2016_Financial-Stability-Report

to the size of the resources available to each CCP (see Figure 50). That ranges
from 0.8 percent to 5.8 percent of prepaid and callable default resources.
Initial margin resources. Margin requirements are set by the CCP’s modeled
estimates of potential losses on a member’s derivatives portfolio. The
requirements apply to clearing members’ own house accounts and to those
of their customers. Clearing members are responsible for meeting the minimum
collateral requirement on behalf of their customers.
The proportion of total collateral that clearing members post for their
customers varies among U.S. CCPs, according to the new data. The split
between customer and house collateral should reflect their positions and
risk exposures. Figure 49 shows that customer margin accounts are relatively
large for traditional futures and options markets, such as Options Clearing
Corp. and CME. Options Clearing Corp.’s customer accounts were 88 percent
of total required initial margin. CME’s were 82 percent. Customer
margin accounts are relatively small for markets for interest rate swaps and
credit default swaps: 50 percent of total margin at ICE Clear Credit and less
than 39 percent at SwapClear.
The disclosure also reports the number of times that a CCP’s margin
requirement failed to cover changes in the mark-to-market value of an
account. Such shortfalls create an intraday or end-of-day exposure for the
CCP to the clearing member. Of the four CCPs in Figure 49, three reported
shortfalls in their disclosures for the second quarter of 2016. CME reported
that shortfalls had occurred 10 times, LCH 521 times, and OCC 39 times.
None reported a shortfall in 2015.
Liquidity resources. Derivatives CCPs’ major liquidity risk results from the
nature of their payment flows. Clearing members are required to make variation
margin payments to the CCPs to cover the effects of price changes to
their customers’ and their own positions.
The new quarterly disclosure data show the amounts of liquid assets,
defined as either cash or Treasury securities, held by each CCP as margin
and guarantee funds. The data show the average and peak variation margin
payments required by a CCP during the previous quarter. They also show
the impact from the hypothetical failure of the CCP’s one or two largest
clearing members. In addition, they report any daily losses exceeding
existing margin accounts.
OFR analysis of the U.S. CCPs’ filings shows they hold the majority
of margin and guarantee funds in liquid assets. For example, CCPs’ initial
margin funds range from 83 percent to 99 percent invested in liquid
assets. The one exception is Options Clearing Corp., which allows referenced
securities, such as the underlying stock in a covered call transaction,
as collateral when writing such options.
Key Threats to Financial Stability 53