FIA has updated its CCP Tracker visualizations with data from the third quarter, which were released at the end of December.
The CCP Tracker visualizations show risk-related metrics for 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 the clearinghouses.
Highlights of the second quarter:
Initial Margin:
Initial margin functions as the first line of defense in case of a default. In the third quarter,
- LCH Ltd. had the highest IM requirement, with $215.1 billion at quarter-end. Approximately 55.5% 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 $196.2 billion at quarter end. Of that amount, 80% was deposited on behalf of clients.
- OCC was third with $115 billion at quarter-end.
- ICE Clear Europe was fourth with $99.6 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 $189 billion at quarter end.
- CME's base clearing service, which covers listed futures and options across several asset classes, had more than $164.2 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 $13.3 billion at the end of the quarter.
- LCH Ltd. was second with $11.5 billion.
- JSCC was third with $8.6 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.
- OCC contributed the largest amount to this initial layer, with $320 million added to the default fund at the end of the third quarter.
- Australia's ASX was second with a combined $267.4 million across its two clearing services.
- CME was third with a combined $250 million across its two clearing services.
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 September was reported by Eurex Clearing. That breach was £187.2 million in its equity derivatives clearing service. ICE Clear Europe reported the second highest margin breach, $109.7 million in its futures and options clearing service. The third highest breach occurred at Eurex in its clearing service for remaining products not covered by equities, FX, etc. with £30.1 million.
CME had the lowest margin breach relative to other large CCPs. The peak margin breach reported in its second quarter disclosure was $1.6 million for its "base" clearing service, which covers its exchange-traded futures and options. This was following a $63,000 breach disclosed in Q2 2021. This indicates that the current peak level occurred in the Q3 2021. The peak margin breach for CME's interest rate swaps clearing service was $0 in the third 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: $5.9 billion in case of a single default and $9.3 billion in case of a double default.
- Eurex had the second largest estimated loss exposure, with $3.3 billion and $5.7 billion in case of a single and a double default, respectively.
- LCH Ltd.'s interest rates service was third, with $2.5 billion and $4.7 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 0.2 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 0.5 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 1.2. And the commodity futures clearing services offered by JSCC, which were added in Q3 2020 as a result of the merger of JPX and the Tokyo Commodity Exchange, continued to shrink from the highs of Q4 2020. The estimated stress loss for its precious metals futures clearing service was 3 times larger than the default fund, and the estimated stress loss for its rubber futures clearing service was 2.3 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 third quarter.
- Eurex was second with 89.
- JSCC's bond futures and options service was third with 87.
- JSCC’s index futures and options service was fourth with 71 members.
The CCP Tracker also includes data on concentration ratios, i.e., the ratio of initial margin held by the top five members. The following table shows the IM concentration ratios during the third quarter for a sample set of CCPs.
- 72.1% CME OTC IRS
- 59.7% CME Base F&O
- 53.8% SGX Derivatives
- 51.0% OCC
- 43.6% ICE Clear Europe F&O
- 28.5% Eurex
- 23.0% LCH Ltd Interest Rates
