FIA has updated its CCP Tracker visualizations with data from the first quarter, which were released at the end of June.
The CCP Tracker visualizations show risk-related metrics for these 15 clearinghouses side by side for each quarter going back to 2015. The metrics include initial margin, default funds, margin breaches, stress losses and concentration ratios. The data were obtained from the public quantitative disclosures published by these 15 clearinghouses.
Highlights of the first quarter:
Initial Margin:
Initial margin functions as the first line of defense in case of a default. In the fourth quarter,
- LCH Ltd. had the highest IM requirement, with $211.3 billion at quarter-end. Approximately 55.3% of that amount was deposited by clearing firms on behalf of their clients, with the remainder for house accounts.
- CME Clearing had the second largest amount of initial margin, with $194.4 billion at quarter end. Of that amount, 80.9% was deposited on behalf of clients.
- OCC was third with $114.4 billion at quarter-end.
- ICE Clear Europe was fourth with $73.5 billion at quarter-end.
Taking the view down to the service level, the interest rates clearing service at LCH Ltd. had the highest amount of margin, with more than $191.9 billion at quarter end. That amount mainly came from interest rate swaps cleared through LCH's SwapClear service, but also included interest rate futures and options offered through LSE's CurveGlobal business. CME's base clearing service, which covers listed futures and options across several asset classes, had more than $160 billion in initial margin at quarter-end. Eurex Clearing, the derivatives clearinghouse subsidiary of Deutsche Börse, provided the most granular breakdown of initial margin by clearing service, with data on nine different sets of products.
Default Fund:
The default fund functions as a backstop in case a clearing member is unable to meet its obligations and their initial margin proves insufficient. Most default funds rely primarily from contributions from member firms, with some additional funding provided by the clearinghouse itself.
- OCC had the highest amount of member contributions to its default fund, with $11.6 billion at the end of the quarter.
- LCH Ltd. was second with $10.9 billion.
- CME was third with $8.5 billion.
Many clearinghouses contribute their own funds, called "skin in the game", to an initial layer of protection that absorbs losses before the default fund is used.
- Australia's ASX contributed the largest amount to this initial layer, with a combined $281.7 million across its two clearing services.
- OCC was second with $255 million on its clearing service.
- CME was third with a combined $250 million across its two clearing services.
FIA also measures the ratio of skin in the game to member contributions.
- ASX had the highest ratio by far, mainly because its default fund for exchange-traded options was comprised entirely of skin in the game contributions and zero member contributions.
- SGX Clearing, the clearinghouse division of the Singapore Exchange, was second with a ratio of 24%.
- Hong Kong Exchanges and Clearing was third with 20.6%.
- On the other end of the scale, CME’s ratio was 2.9%.
- OCC's ratio was 2.2%.
- LCH Ltd’s ratio was 1.0%
- The Canadian Derivatives Clearing Corporation, the clearing subsidiary of TMX, was the lowest with a ratio of 0.2%.
Margin Breaches:
The FIA CCP Tracker includes data on the largest margin breach over the prior 12 months. Margin breaches are measured at the member level, not the customer level, and represent the potential exposure to losses not covered by initial margin (i.e. where variation margin losses exceed the initial margin requirement for a particular member).
The largest margin breach over the 12 months ending in June was reported by LCH Ltd. In its interest rates clearing service. The clearinghouse reported a breach of £558.4 million, equivalent to $770.4 million USD, in its first quarter disclosure. That was the same as in the prior four quarters, which indicates that this breach took place during the first quarter of 2020.
LCH Ltd. also reported the second highest margin breach, $550 million in its fixed income clearing service. The third highest breach occurred at TMX with $289.5 million.
CME had the lowest margin breach relative to other large CCPs. The peak margin breach reported in its first quarter disclosure was $63 thousand for its "base" clearing service, which covers its exchange-traded futures and options. This was following four consecutive quarters of a reported $84.6 million, which indicates that the peak level occurred in the Q2 2020 or later. The peak margin breach for CME's interest rate swaps clearing service was $0 in the first quarter.
Stress Loss:
This section of the FIA CCP Tracker shows data on stress losses, which are defined as a CCP's estimate of the potential loss in case of a default by a single member and by two members at the same time.
- OCC reported the largest stress loss estimate: $4.1 billion in case of a single default and $7 billion in case of a double default.
- LCH Ltd.'s interest rates service had the second largest estimated loss exposure, with $3.2 billion and $5.8 billion in case of a single and a double default, respectively.
- Eurex was third with $3.1 billion and $5.4 billion, respectively.
FIA also calculates the ratio of the stress loss to the default fund as a way to gauge how much of the loss the clearing members might have to absorb.
ICE's clearing services for credit default swaps had the lowest ratios of a single exposure to the default fund, just 0.1 for the CDS clearing service at ICE Clear Europe and 0.1 for ICE Clear Credit in the US. ICE's futures and options clearing services also had relatively low ratios, 0.4 for ICE Clear Europe and 0.4 for ICE Clear US.
At the other end of the spectrum, HKCC, the futures clearing subsidiary of Hong Exchanges and Clearing, had a ratio of 1.1. And the commodity futures clearing services offered by JSCC, which were added in Q3 as a result of the merger of JPX and the Tokyo Commodity Exchange, were down from the highs of Q4 2020. The estimated stress loss for its agriculture futures clearing service was 9.9 times larger than the default fund, and the estimated stress loss for its precious metals was 7.7 times larger than the default fund.
Concentration:
This section of the FIA CCP Tracker includes data on the number of general clearing members at each clearinghouse. General clearing members, also known as futures commission merchants in the US, are those members that provide clearing for clients and affiliates. Some clearinghouses also have direct members that clear only their own positions.
- OCC reported the highest number of general clearing members with 107 at the end of the first quarter.
- Eurex was second with 91.
- JSCC's bond futures and options service was third with 88.
- JSCC’s index futures and options service was fourth with 71 members.
Clearinghouses with relatively high numbers of GCMs tended to have relatively low concentration levels. The top 5 members accounted for 49% of total initial margin at OCC, 39% at ICE Clear Europe, and 28.1% at Eurex.
On the other end of the spectrum, the clearing services with less than 25 members tended to have the highest concentration ratios. The top five members held 71.4% at ASX Clear Futures and 69% at LCH Ltd.’s equity clearing services. CME was in the middle of the pack, with initial margin concentration ratios of 60.2% for F&O and 68.2% for IRS.
