Risk management is a trade craft that never sleeps: Market conditions change, new products are invented, mathematics advance, operational flows become more complex, regulation evolves. We’ve seen all of these over time in CME Group’s futures and options markets: Recent oil market and FX market gyrations, the introduction of deliverable swap futures, SPAN margin model changes, customer gross margining regulations, and increasingly strict funding timelines and processes for margin calls.
Our web-based CME CORE application is part of the next generation of risk management tools we’re developing to help traders, brokers, risk managers and reconciliation personnel measure and monitor risk in a fast, user-friendly way. It has an intuitive user interface and workflows focused on “what-if margining.” For example, if you execute a new trade, CME CORE will help you illustrate how your margin requirement will change. CME CORE also is compatible with simple csv uploads for those who prefer to work in Microsoft Excel, and it has an API for users looking for a higher level of integration and automation.
A brief example of the interface is shown below. Trader A originally had a position with 1,000 Long December 2015 NYMEX WTI Crude Oil contracts (first screenshot). This came with a margin requirement of $3.5 million. Trader A then decided that it may be prudent to hedge their downside risk and buy 500 near-the-money Put options on that contract (second screenshot). This created Hypothetical Portfolio A, which shows both the new margin requirement and change in margin requirements ($718,000 and $-2,782,000 respectively).
CME CORE’s userbase has grown to more than 5,000 in just a few years and continues to grow. And because the application is hosted by CME Group, as margin calculations change and margin software changes, users do not have to worry about software upgrades or compatibility issues over time. Operational and risk analytics vendors, buy-side and sell-side participants, and clearing members have all started to connect to CME CORE’s web-based API to facilitate risk-based workflows.
For more information, please reach out to the full-time CME CORE support staff at cme.core@cmegroup.com. For additional information or to sign up for CME CORE, go to www.cmegroup.com/core.