In recognition of the growing linkages among the markets for exchange-traded equity derivative products, as well as the need to promote efficient clearing procedures and to focus on the true intermarket risk exposure of clearing members, CME Clearing, in conjunction with The Options Clearing Corporation (OCC) offer a cross-margining program with respect to market professionals and proprietary accounts.

Combining the positions of joint or affiliated clearing members in certain broad-based equity index futures and options into a single portfolio, and utilizing the sophisticated risk-based margining systems of each clearing organization, results in a single performance bond requirement across both markets. The clearing organizations jointly hold a first lien on and security interest in the positions in
cross-margined accounts. All performance bond deposits associated with these accounts are jointly held. The cross-margining program significantly enhances both the efficiency and financial integrity of the clearing system by allowing gains accruing to futures or options positions to be immediately available to meet the requirements for funds from losing positions.

In the event that a clearing organization suspends a cross-margining member, the positions in the cross-margin accounts would be liquidated and all performance bond collateral would be converted to cash and applied toward each clearing organization’s costs of liquidating the cross-margin accounts.

CME Clearing and the OCC are each entitled to half of any surplus to apply toward other obligations of the clearing member; if one clearing organization did not need its entire share of the surplus, the excess would be made available to the other clearing organization.

Clearing also maintains cross-margin agreements with the LCH Clearnet, the Fixed Income Clearing Corporation, and the New York Mercantile Exchange. These programs involve the cross-margining of selected short-term interest rate, fixed income and commodity products. The design of these crossmargin programs differ from the above mentioned OCC program in that performance bond collateral is held separately at each respective clearing organization. In the event that a clearing organization suspends a cross-margining participant, the cross margined positions would be liquidated and performance bond collateral would be converted to cash at each respective clearing organization. If as a result of the liquidation of cross-margined positions and performance bond there is a resulting cross-margin loss, there will be a cross-margin guarantee payment from one clearing organization to
the other to share the loss.