Volume traditional cross

Cross initial margin

OCC introduced cross margining in 1989 to reduce systemic market risk by recognizing the offsetting value of hedged positions maintained by firms at multiple clearinghouses. By allowing for intermarket hedges, OCC is able to enhance firms' liquidity and financing capabilities through reduced initial margin requirements, fewer margin variations and smaller net settlements.

Since cross margining's inception, the number of products eligible for offset has increased significantly. OCC currently participates in cross margin programs with the Chicago Mercantile Exchange and ICE Clear US as well as offering an internal cross margin program for products where OCC clears both the SEC and CFTC regulated contracts.

History

After increased volatility of the late 1980s, advantages of the Cross Margin program became evident. Member firms were experiencing significant liquidity draws as a results of margin calls being issued by one clearinghouse against a position where the member maintained an offsetting position at another clearinghouse.

For example, a clearing member who was synthetically long an index option position while short the futures contract would be required to satisfy a margin call with the options clearinghouse, even though the member maintained an offsetting position with the futures clearinghouse. Despite being hedged, the member would be obligated to meet a cash settlement when, in the aggregate, the overall risk of the position was insensitive to changing prices in the marketplace.

Participation

Cross margining was designed for firms with memberships across various clearing organizations which guarantee products that are highly correlated. Due to differences in securities and futures related customer protection requirements, the program is only open to clearing members and their affiliates, and market professionals who include market makers and futures locals.

In order to facilitate the cross-margin process, participating clearinghouses establish joint clearing accounts for each member. In the event of a default, the clearinghouses' arrangement provides for the treatment of all assets and obligations associated with the cross-margin account as well as the other clearing accounts of the defaulting member.

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