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What is Portfolio Margining (PM)?
When CME Clearing enables portfolio margining between Eris SOFR Swap Futures and Cleared Interest Rates Swaps (targeted for Jan 2022), market participants can experience significant initial margin (IM) reductions by migrating Eris SOFR positions into cleared swap portfolios. The joint portfolios, backed by the CME IRS default fund and benchmarked to a 5-day VAR margin period of risk, allow offsetting swaps and futures to result in reduced IM amounts compared to the amount required to maintain the positions separately.
How big will the margin savings be?
CME CORE (New Release) shows margin savings of 86-93% between Eris SOFR Swap Futures and equivalent CME Cleared IRS, including 90% savings on Eris SOFR 10y (Long YIYZ21 vs. Pay Fixed CME Cleared Swap, with equivalent notional values).
How will PM improve Eris markets?
For Eris SOFR market makers, Swaps/Futures PM will allow them to reduce significantly the cost of holding swap hedges against Eris SOFR positions, which is likely to decrease bid/ask spreads (particularly from 5-10y tenors), increase quoted size and attract additional liquidity providers.
For Eris SOFR end users, Swaps/Futures PM will reduce the margins associated with holding offsetting positions of swaps and futures, enabling increased use of Eris SOFR in swap portfolios while maintaining the benefits of portfolio margining.
How do participants access PM savings?
After CME Clearing launches PM support for Eris SOFR, market participants can access portfolio margin savings by requesting support from a Clearing Firm/FCM (Futures Commission Merchant) eligible to clear both CME OTC IRS and CBOT futures. A list of CME Clearing firms can be found here.
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