FIA has updated its CCP Tracker visualizations with data from the fourth quarter, which were released at the end of March.
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 fourth quarter,
- LCH Ltd. had the highest IM requirement, with $217 billion at quarter-end. Approximately 57.4% 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 $189.6 billion at quarter end. Of that amount, 82.3% was deposited on behalf of clients.
- ICE Clear Europe was third with $143.5 billion at quarter-end.
- OCC was fourth with $121 billion at quarter-end.
- Eurex was fifth with $66.4 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 $195.6 billion at quarter end.
- CME's "base" clearing service, which covers listed futures and options across several asset classes, had more than $159 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 ten different sets of products. Since last quarter, Eurex has added a crypto derivatives clearing service.
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 $15.8 billion at the end of the quarter.
- LCH Ltd. was second with $11.7 billion.
- CME was third with $9.7 billion.
- JSCC was fourth with $8.2 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 $281.5 million added to the default fund at the end of the fourth quarter.
- Australia's ASX was second with a combined $268.9 million across its two clearing services.
- CME was third with a combined $250 million across its two clearing services.
- ICE Clear Europe was fourth with $247.2 million.
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 December was reported by ICE Clear Europe. That breach was $1.03 billion in its futures and options clearing service. Nasdaq reported the second highest margin breach, $70 million in its energy clearing service. The third highest breach occurred at Eurex in its clearing service for OTC interest rate products with €56.4 million.
CME had the lowest margin breach relative to other large CCPs. The peak margin breach reported in its fourth quarter disclosure was $1.6 million for its "base" clearing service, which covers its exchange-traded futures and options. This was the same amount that was disclosed in its third-quarter report, meaning that the breaches that occurred during the fourth quarter were no higher than the previous peak.
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: $6.1 billion in case of a single default and $9.5 billion in case of a double default.
- Eurex 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.
- CME’s base clearing service was third, with $3.3 billion and $5.5 billion, respectively.
- LCH's interest rate service was fourth, 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 0.2 for ICE Clear Credit in the US. ICE's futures and options clearing services also had relatively low ratios, 0.7 for ICE Clear Europe and 0.6 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 1.5. 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 2.3 times larger than the default fund, and the estimated stress loss for its rubber futures clearing service was 1.8 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 fourth quarter.
- Eurex was second with 88.
- JSCC's bond futures and options service was third with 85.
- JSCC’s index futures and options service was fourth with 70 members.
- Two London-based clearing services—LCH's interest rate service and ICE Clear Europe's futures and options clearing service—tied for fifth with 64 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 fourth quarter for a sample set of CCPs.
- 67.8% CME OTC IRS
- 62.6% CME Base F&O
- 53.4% SGX Derivatives
- 47.0% OCC
- 50.4% ICE Clear Europe F&O
- 29.1% Eurex
- 22.9% LCH Ltd Interest Rates
