Risk Management

Chicago Mercantile Exchange provides and regulates a marketplace where futures and options on futures are traded. CME clears, settles and guarantees all matched transactions in CME contracts occurring through its facilities. Furthermore, it establishes and monitors financial requirements for clearing members and sets minimum “performance bond” levels for all CME-traded products. The financial integrity of the CME marketplace is a foremost consideration of the Exchange’s Board of Directors and management.

Risk management and financial surveillance are the two primary functions of CME’s financial safeguard system. The system is designed to provide the highest level of safety and the early detection of unsound financial practice on the part of any clearing member. The system is constantly being updated to reflect the most advanced risk management and financial surveillance techniques.

The Clearing House is an operating division of the Exchange, and all rights, obligations and/or liabilities of the Clearing House are rights, obligations and/or liabilities of CME.

The Safeguards

The techniques employed by CME are comprehensive and specifically designed to:

  • Prevent the accumulation of losses
  • Ensure that sufficient resources are available to cover future obligations
  • Result in the prompt detection of financial and operational weaknesses
  • Allow swift and appropriate action to be taken to rectify any financial problems and protect the clearing system

Performance Bonds

CME establishes minimum initial and maintenance performance bond levels for all products traded through its facilities. CME bases these requirements on historical price volatilities, current and anticipated market conditions, and other relevant information. Levels vary by product and are adjusted to reflect change in price volatility and other factors. Both initial and maintenance performance bonds are good faith deposits to guarantee performance on futures and options contracts. Should performance bonds on deposit at the customer level fall below the maintenance level, Exchange rules require that the account be re-margined at the required initial performance bond level.

Additional Lessons

Contents Courtesy of CME Group.