The Options Clearing Corporation (OCC) and CME Group today commemorated the 20th anniversary of their highly successful cross-margining partnership that has brought greater efficiency and flexibility to the marketplace.
Since 1989, the OCC/CME Clearing cross-margining program has reduced systemic market risk by recognizing the offsetting value of hedged positions maintained across the two clearinghouses.
"This cooperative effort is as effective in reducing risk and enhancing firms' liquidity today as it was following the 1987 market break," said Michael E. Cahill, OCC President and Chief Operating Officer.
Our cross-margining agreement has been recognized by market makers as a way to further enhance safety and security during times of broader market events," said Kim Taylor, President of CME Clearing. "CME Group continues to develop and support relationships between clearing organizations where a strong risk management discipline is in place and can be enhanced in order to provide a greater value to the marketplace."
The combination of hedged positions cleared at different clearinghouses into a single portfolio for margin and settlement purposes allows risk to be assessed with greater accuracy and reduces initial margin requirements. During the increased volatility of the late 1980s, member firms of both OCC/CME were experiencing significant liquidity draws resulting from margin calls from one clearinghouse against a position where the firm maintained an offsetting position at another clearinghouse.
Clearing level margins are computed based on the combined positions maintained in the cross-margin accounts using the sophisticated risk-based margining systems of both clearing organizations. This results in one margin requirement for the firm covering both markets. Cross-margining continues to provide substantial savings for program participants as it has done over the past 20 years.