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«Forwards and futures A forward may be distinguished from a future as follows:  Liquidation versus no liquidation With futures, you can liquidate ...»

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At contract maturity (end-of-day on the “clearing settlement date”):

 The mark-to-market amount is set to zero.

 We then calculate the settlement variation amount to be banked exactly as on any other day – by subtracting the previous day’s value for mark-to-market from the current day’s (zero) value.

 The final cash settlement amount is calculated and included in the cash amount to be banked..

 The initial margin requirement is set to zero, exactly as for any other cash-settled forward or future.

 On the value date for the cash movement, the cash moves at the bank, and any collateral deposited to meet the initial margin requirement may be withdrawn.

Wet Freight forwards – cash-settled with collateralized mark-to-market

At contract maturity (end-of-day on the “clearing settlement date”):

 The mark-to-market amount is set to zero, and hence has no further impact on the initial margin requirement.

 The final cash settlement amount is calculated and banked.

 The initial margin requirement is set to zero, exactly as for any other cash-settled forward or future.

 On the value date for the cash movement, the cash moves at the bank, and any collateral deposited to meet the initial margin requirement may be withdrawn.

Gold forwards – physically-delivered with collateralized mark-to-market

For a physically-delivered forward, at contract maturity (end-of-day on the clearing settlement date):

 The mark-to-market amount is set to zero, and hence has no further impact on the initial margin requirement.

 The invoice amount, calculated at original trade price, is included in the total amount to be banked.

On the value date for physical delivery (typically the next day), the position is removed. This causes the initial margin requirement to be set to zero, and any collateral deposited to meet it may be withdrawn.

Clearing and Bookkeeping Processing for Forwards September 18, 2013 -- Page 9 Tear-up’s (liquidations prior to maturity) and transfers A clearing firm that has two exactly offsetting transactions – same contract, same price, same quantity, opposite market side – may request that the two transactions be torn up. Upon such request, the two transactions will be removed.

Similarly, partial tear-up’s may be done. The original transaction and the offsetting transactions must be for the same value date and price. The quantity on the original transaction will be reduced, and the offsetting transaction will be removed entirely.

Two clearing firms wishing to tear up a trade between them, may do so upon request. Upon confirmation by both firms, the trade will be removed for both. If the firms desire, they may also specify a cash amount to be moved between them associated with the tear-up.

If a trade must be transferred from one clearing firm to another, a transfer transaction should be cleared at original trade price. Then, upon request by the original clearing firm, the original transaction and the offsetting transfer transaction will be removed.

All tear-up requests are handled via the CME ClearPort Facilitation Desk.

–  –  –

CME Clearing’s gold, wet freight, and FX forward contracts are all part of the Cleared Swaps regulatory class, and therefore customer positions in them and related collateral are part of the Customer Cleared Swaps (“COTC”) class.

As such, these positions, and associated money and collateral deposits, must be kept separate from both “customer segregated” futures positions and money amounts, and proprietary (house) amounts.

PCS not needed for forwards Because all forward positions are held open in the clearing system, unless explicitly torn up, submission of Position Change Specification (“PCS”) data is not required.

Performance bond calculations Records for all forward products are included in the daily SPAN risk parameter files.

Performance bond (“initial margin”) requirements are calculated for gold and freight forwards using SPAN exactly as for any other product. Requirements for FX forwards will be calculated via HVAR.

For the CME Europe delivered gas forwards, margin requirements for positions in the monthly contracts are calculated in SPAN normally. Margins for positions in the daily contracts are also calculated via SPAN, until the clearing processing day immediately prior to the last day of trading.

For those daily gas forward contracts, beginning on the last day of trading and continuing up to but not

including the clearing settlement date, the contracts are not margined in SPAN. Rather:

 For net short positions, the margin requirement is the net short quantity (expressed as a positive number), times the normal margin rate for a single contract, as taken from the SPAN file.

 For net long positions, the margin requirement is the full invoice requirement.

Beginning at end of day on the clearing settlement date, the initial margin requirement for the daily gas contracts is set to zero.

–  –  –

Product master data for forwards is published daily in the FIXML Product Reference files.

The FIXML Settlement Price Files are the single best source for daily settlement prices for forwards, because in addition to prices, they also contain (a) discount factors needed for the mark-to-market calculation, and (b) the interest rates and number-of-days parameters needed for calculating price alignment interest amounts.





The daily SPAN files may also be used to obtain settlement prices, and these also contain discount factors.

Basic FIXML usage for forwards:

The security type attribute provides the product type code, indicating that the product is a forward:

SecTyp=”FWD”

The settlement method attribute specifies whether the forward is cash-settled or physically-delivered:

SettlMeth=”C” or SettlMeth=”P”

The valuation method attribute specifies whether the forward has a collateralized or cash mark-tomarket, and if cash, whether it is calculated in the normal way or the inverse way:

–  –  –

FnlSettlCcy=”USD” This tells you that the mark-to-market amounts are denominated in USD – ie, that markto-market amounts are calculated using the “inverse” method. (If calculated normally, the value would have been CLP, the same as the price quotation currency.) Clearing and Bookkeeping Processing for Forwards September 18, 2013 -- Page 12 Exactly as for futures, the MMY attribute provides the contract period code, and identifies the specific forward contract. Exactly as for futures, this will typically be a value specific either to the month or to the day. For example, MMY=”201012” (December 2010) or MMY=”20101223” (Dec 23, 2010).

Exactly as for futures, the MatDt attribute provides the clearing settlement date, ie, the date on which the final settlement price is provided and the the final settlement amount is considered realized on the trade register. For example, MatDt=”2010-12-23” For a physically-delivered forward contract, the delivery date (also called the physical settlement date or value date) is provided via the SettlDt attribute. For example, SettlDt=”2010-12-24” For cash-settled forwards, especially FX non-deliverable and cash-settled forwards, the fixing date – the date on which the market observation is done to determine the final marking price – is provided in an Evnt element of type 121. For example, Evnt EventTyp=”121” Dt=”2012-02-10”/ Getting the Settlement Price and the Discount Factor On the FIXML Settlement Price File, the end-of-day settlement price and the discount factor are

provided in a Full element of type 6. For example:

Full Typ=”6” Px=”29.3838” Mkt=”CME” DiscntFctr=”0.99952”/ The discount factor is also provided in the SPAN file. In the expanded-format, the discount factor is provided on the type “B” record for each forward contract, in positions 152-163, with ten implied decimal places.

Discount factors are always provided as a decimal fraction. The maximum precision for a discount factor is 0.00001 percent, or 0.0000001 as a decimal fraction On the PosRpt messages in the Trade Register file, as with any contract, the SetPx and PriSetPx attributes provide the current day’s settlement price and the previous clearing day’s settlement price.

The discount factor used for the contract is provided in the Fctr attribute in the Instrmt element, on both the PosRpt and the TrdCaptRpt messages. For example: Fctr=”0.9998700” Clearing and Bookkeeping Processing for Forwards September 18, 2013 -- Page 13 Attribution specific to the calculation of Price Alignment Interest

The following values are present in both the Product Reference file and the Settlement Price File:

The Attrb element of type 111 specifies the Price Alignment Interest rate type applicable to the

contract. For example:

Attrb Typ=”111” Val=”USDPAI”/ The Attrb element of type 116 specifies the number of calendar days to use in annualizing the

interest rate. This will be either 360 or 365. For example:

Attrb Typ=”116” Val=”360”/ The Attrb element of type 112 specifies whether the current business day is a banking business day for the variation margin currency. If the current date is not a banking business day, then by

definition the value of price alignment interest is zero. For example:

Attrb Typ=”112” Val=”Y”/

–  –  –

The following values are present in the Product Reference File:

The Evnt element of type 114 specifies the prior clearing processing date from which the variation margin balance should be taken – for forwards, always the immediately prior clearing

processing date. For example:

Evnt EventTyp=”114” Dt=”2012-02-10”/ The Evnt element of type 115 indicates the subsequent banking business date up to which you

count when determining the number of calendar days. For example:

Evnt EventTyp=”115” Dt=”2012-02-16”/ The interest rate to use for the price alignment interest calculation is in the Settlement Price File,

in percent, in a Full element of type z. For example, the following means the rate is 9 basis points:

Full Typ=”z” Px=”0.09” Pxtyp=”1” Mkt=”CME” OpenClsSettlFlag=”1”/ Trade Confirmation Messages For privately-negotiated deals in forwards captured via CME ClearPort, the trade type is OPNT – short for over-the-counter privately-negotiated-trade.

Clearing firms will receive FIXML trade confirmation messages for cleared forward trades exactly as for any other contract.

–  –  –

In the FIXML Trade Register file produced each day, there will be TrdCaptRpt trade records for every open trade and PosRpt position records for every position.

On the Trade Records On the trade records, the Amt element for type TVAR (trade variation) will contain always contain the discounted mark-to-market amount. This value will be set to zero beginning on the clearing settlement date for the contract.

On the clearing settlement date, the Amt element of type DLV contains either the final cash settlement amount (for cash-settled forwards) or the invoice amount (for physically-delivered forwards). On all other dates, this value is zero.

For forwards with a cash mark-to-market, the value of price alignment interest is provide in an amount element of type CASH, with a reason code of 4.

On the Position Records On the position records, the Amt element of type FMTM will always contain the sum of the discounted mark-to-market amounts from the trades (the sum of the TVAR amounts). Exactly as with the TVAR amounts, this value will always be zero beginning on the contract’s clearing settlement date.

Note: In the near future, based on clearing firm requests, we may begin including the undiscounted mark-to-market amounts as well. This will also be in an Amt element of type FMTM, but will be distinguished from the discounted amount by having an attribute of Rsn=”5”.

This value is information only and does not affect any actual cash or collateralized amount.

For forwards with cash mark-to-market, the settlement variation amount is provided in an Amt element of type IMTM, short for “incremental mark-to-market.” This is equal to the value of discounted markto-market for the current clearing processing day, less the value of discounted mark-to-market for the immediately previous clearing processing day.

The amount element of type DLV contains either the final cash settlement amount (for cash-settled forwards) or the invoice amount (for physically-delivered forwards.) The value will always be equal to the sum of the corresponding values from the trade records, and will always be zero except on the contract’s clearing settlement date.

Note that for gas forwards, we also provide:

 An amount element of type DLV_CLEAN, to provide the clean invoice amount (without the 20% bumpup for value-added tax)  An amount element of type DLV_VAT, to provide the exact amount of the tax.

 An amount element of type DLV_MARGIN, to provide the amount of the delivery margin.

Just like DLV, the values of the DLV_CLEAN and DLV_VAT amount elements will be zero except on the clearing settlement date. The DLV_MARGIN element will be nonzero beginning on the last day of trading and continuing up to (but not including) the clearing settlement date.

Clearing and Bookkeeping Processing for Forwards September 18, 2013 -- Page 15 For forwards with a cash mark-to-market, the value of price alignment interest is provide in an amount element of type CASH, with a reason code of 4. Note that this value on the position record is the sum of the values on the corresponding trade records.

For simplicity, two Amt elements will be provided for every forward position, with types BANK and COLAT, respectively.

The first of these – the BANK type – provides the total cash amount to be banked. It will always include DLV and CASH amounts, and for forwards with cash mark-to-market, will include the IMTM amount.



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