Creating Capital Efficiencies through Portfolio Margining (CME Group)

July 2013

KEYWORDS: managed futures, margin, clearinghouse


Howard Simons

  • CME Group


Futures traders have been used to margin offsets on economically related spread positions held in the same clearinghouse for years. The logic is the risks of a long position in one commodity such as West Texas Intermediate (WTI) crude oil can be offset in some proportion by short positions in refined products such as ultralow sulfur diesel fuel (ULSD) or the base blending stock for gasoline (RBOB). As these spreads lower the trader’s risks to the clearinghouse, a lower margin requirement is justified and capital outlays are reduced.

A commonly traded spread in the energy markets is the 3-2-1 crack spread. Using the case of three short Brent futures against two long RBOB and one long ULSD future, at levels prevailing in June 2013, what would the margin requirements be?

  • If Brent and refined products are traded on different exchanges and margined accordingly: $27,590
  • If traded and held at the CME clearinghouse: $6,256

This 77.3% reduction in margin requirements is representative of capital efficiencies presented by holding positions at a single clearinghouse.

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