ICE Clear Europe provides central counterparty clearing and risk management for interest rate, equity index, agricultural and energy derivatives under the Futures & Options clearing service.
ICE Clear Europe has several committees supporting its risk management decisions. In addition to the Board of Directors, these include the:
ICE Clear Europe’s risk management framework is structured to ensure robust clearing arrangements, minimizing risks to the Clearing House and its Clearing Members. Under such framework, ICE Clear Europe has developed a comprehensive tiered waterfall approach to risk management. These tiers are as follows:
Lines of Defense
1. Membership Criteria | Ensures that each Clearing Member has sufficient financial resources, operational capabilities and risk management experience. |
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2. Variation Margin Requirement | All open positions are marked-to-market on a daily basis. P&L is paid/received and settled overnight, in cash, in the currency of the contract. |
3. Intra-day Risk Monitoring & Margin Call Execution | Clearing Members positions are monitored intra-day, with additional collateral called intra-day where Variation Margin losses and/or Initial Margin requirement increases breach predefined thresholds. |
4. Margin Requirement | Clearing Members are required to post Initial Margin in respect of open positions. Initial Margin is designed to be sufficient to cover the potential cost of a Clearing Member default under normal market conditions. |
5. ICE's Initial Contribution | ICE has contributed an amount of its own funds, i.e. "skin-in-the-game", which is available prior to the Clearing Members' mutualised funds. |
6. Default Insurance | ICE has arranged for an amount of default insurance that can be used to cover losses above the defaulting Clearing Member's funds and ICE's Initial Contribution (subject to specific provisions in Part 9 and 11 of the Clearing Rules). |
7. Guaranty Fund | Should a defaulting Clearing Member's Initial Margin and Guaranty Fund contribution be insufficient to cover the cost of closing-out their positions in extreme market conditions, ICE Clear Europe has established the Futures & Options Guaranty Fund to cope with the excess losses. |
8. Powers of Assessment | In extreme situations, where a Clearing Member default exhausts the Guaranty Fund, the non-defaulting Clearing Members can be called for additional funds under Powers of Assessment. The Power of Assessment is limited to a set multiple of a Clearing Member's current Guaranty Fund contribution. |
9. CCP Recovery Mechanism | Rules have been developed in order to deal with a default, or series of defaults, which threatens to exhaust all Clearing House financial resources to ensure it remains solvent and can continue to operate. |
ICE Clear Europe operates different models in order to calibrate its margin requirements. These models are dependent on the products cleared and are summarised as follows:
Market | Margin Model | Confidence Interval | Look-back Period | Margin Period of Risk |
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Energy | Filtered Historical Simulation | 99% | 500** days | 1 or 2-days* |
Financials & Softs | Parametric VaR | 99% | 60, 250** and 525 days | 2-day |
Financials & Softs | Historical Simulation | 99% | 100, 250 and 525 days | 2-day |
ICE Clear Europe aims to reduce the model procyclicality, without compromising the model performance, by adding stress observations to the volatility calculation of each risk factor. In particular, a weighted average of 25% stress volatility and 75% current volatility is used in the parameterization of the models. The stress volatility is defined as the maximum 250-day volatility calculated on a rolling basis over the entire available history of the risk factor return series.***
All risk models used by ICE Clear Europe are reviewed and subject to a formal model governance process. Model performance is monitored daily, with the suitability of all models independently reviewed on an annual basis. Any material change to an existing model and all new models are subject to independent model validation.
Parameters used within the models are reviewed and set by the ICE Clear Europe in accordance with policies and procedures approved by the appropriate committees.
* 1-day MPOR applies to Oil, US Gas and Power, Coal, US Emissions, NGL, Petrochemicals; 2-day MPOR applies to EU Gas and Power, EU Emissions, and Freight contracts.
**Incorporating Anti-Procyclicality measures.
*** This corresponds to option (b) of Delegated Regulation (EU) No 153/2013, Article 28, as incorporated into UK law with modifications at the end of the Brexit transition period by virtue of the European Union (Withdrawal ) Act 2018.
Initial Margin is a returnable deposit based on a Member’s open positions. It is calibrated to be sufficient to cover the expected cost of closing out a defaulting Member’s position in normal market conditions to a 99% confidence interval. Model performance is monitored daily via both portfolio and contract level back-testing. For Futures & Options products, the Initial Margin requirement is calculated using ICE Risk Model.
Clearing Members may be required to provide additional margin for risk not covered by the Initial Margin such as concentration risk, credit risk or wrong way risk. Changes to margin parameters are notified via Circulars to the market participants.
The Initial Margin requirement is currently calculated using ICE Risk Model 1 (IRM 1). ICE Clear Europe will start migrating to ICE Risk Model 2 (IRM 2) in 2024. For information about ICE’s new risk model, please see here.
Total Initial Margin information is available in the Financial Resources section of ICE Clear Europe’s Regulation webpage.
F&O Margin Rates
IRM 1 comprises the following components:
ICE Clear Europe has established a mutualised Guaranty Fund which is based on stress testing results, in compliance with the applicable regulations. The Futures & Options Guaranty Fund consists of two Segments: an Energy Segment and a Financials & Softs Segment. The Guaranty Fund is calibrated to be sufficient to cover the potential cost of the simultaneous default of the two Clearing Member groups to which the Clearing House has the largest exposure under extreme but plausible market conditions.
The contribution of each Clearing Member to the Futures & Options Guaranty Fund is recalculated periodically and is determined by each Clearing Member's relative share of intraday Initial Margin and uncollateralised stress exposures over the preceding two months. A minimum Clearing Member contribution of USD 1 million applies.
The adequacy of the Futures & Options Guaranty Fund is monitored on a daily basis by ICE Clear Europe and the level of both the Energy and Financials & Softs segments are reviewed by the appropriate risk committees regularly.
The order in which the Futures & Options Guaranty Fund assets are applied in the event of a Clearing Member default is as follows:
* The combined Futures & Options Guaranty Fund requirement and ICE’s Futures & Options Initial Contribution is available in the Financial Resources section of ICE Clear Europe’s Regulation webpage.
In stressed or volatile market conditions, margin models could drive increases in margin requirements.
ICE Clear Europe assesses procyclicality using percentage changes in margin requirements over a 5-day (short-term) and 30-day (long-term) windows. Threshold conditions are applied to the 95th expected shortfall level of the percentage changes over a rolling 250-day window. The monitoring triggers an amber warning if the expected shortfall exceeds 50% and a red warning if it goes beyond 100% for the short-term metric. For the long-term metrics these thresholds are respectively 125% and 250%. These metrics are calculated for top benchmark products per market on a daily basis.
Initial margin requirements are back-tested against the price changes to ensure that requirements are performing within the stated risk parameters. Back-testing exercises are performed on a daily basis and cover a number of different parameters and portfolio configurations.
Further details of back-testing results of the Clearing Member portfolios are contained within ICE Clear Europe’s CPMI-IOSCO Public Quantitative Disclosure Standards for CCPs. Please see Section 6.5 of the Aggregated Data File available under the Quantitative Disclosures section of ICE Clear Europe’s Regulation webpage.
In case of an Event of Default being declared in relation to a Clearing Member, ICEU’s first Default Management objective is to take timely action to return the Clearing House, as soon as is reasonably practicable, to a matched book while aiming to contain both losses and liquidity pressures.
This protects both the non-defaulting Clearing Members and the Clearing House from losses and by extension the markets that the Clearing House provides clearing services to.
ICE Clear Europe has extensive powers under Part 9 of the Clearing Rules that allow it to perform this function. This includes details on events that could constitute an Event of Default.
The Clearing House will, on a best endeavours basis and subject to Part 9 of the Clearing Rules, assist clients of the Defaulter in the transfer of their positions to an alternative Clearing Member. For further information on porting of client positions, please see ICE Clear Europe’s Client Clearing webpage.
ICE Risk Model is a margin calculation tool that supports the calculation of Initial Margin amounts for products cleared by ICE Clear Europe, based upon the ICE Risk Model specification.
All market participants and users, as well as others with an interest in understanding how ICE Clear Europe margins its products, are welcome to download and use the ICE Risk Model software. Users are reminded that they are required to accept the terms of the software license as part of the installation process. Users are not charged for use or download of the software, but there are limitations to using the software in commercial applications.
ICE Risk Model utilises the Microsoft.NET Framework, version 3.5. Users must install this program prior to installing ICE Risk Model. Download Microsoft .NET here.
Note this tool does not support ICE Risk Model 2 (IRM 2). For IRM 2 please use ICE Clearing Analytics (ICA). ICA is a web-based tool that supports both IRM 1 and IRM 2.
Contained in the below files are the current ICE Risk Model margin parameters for all Energy contracts cleared by ICE Clear Europe. Separate files have been used for the different types of parameter, i.e. one file containing all scanning ranges and a separate file for all inter-month spread charge rates, etc. For inter-month and inter-commodity spread charges details of the tier structure are contained in a separate file.
Use the filter dropdown below to select "Current ICE Risk Model Parameter" or "Historical ICE Risk Model Parameter". Please also note that the Excel files available below are formatted in strict csv format.
Note ICEU plans to start migrating Energy products to ICE Risk Model 2 (“IRM 2”) in 2024, subject to the completion of all relevant regulatory processes. Publication of IRM 1 margin rates will be discontinued after the migration is complete. For more information on IRM 2, please see - ICE Risk Model 2.
* Changes to the ICE Risk Model parameters will be reflected in margin calls made on the Effective Date.
ICE Clear Europe Simulation Risk Array File
Following requests from Clearing Members and market participants, ICE Clear Europe has prepared a ICE Clear Europe Simulation Risk Array File which can be used to determine the preliminary impact of proposed margin rate changes which have been announced but not yet implemented. The ICE Clear Europe Simulation Risk Array File, which includes new proposed margin parameters, is available here.
For further information or questions, please email [email protected].
Contained in the below files are the current ICE Risk Model margin parameters for Financial & Soft Commodity contracts cleared by ICE Clear Europe. Separate files have been used for the different types of parameter, i.e. one file containing all scanning ranges and a separate file for all inter-month spread charge rates, etc. Use the filter dropdown below to select "Current ICE Risk Model Parameter" or "Historical ICE Risk Model Parameter". Please also note that the Excel files available below are formatted in strict csv format.
* Changes to the ICE Risk Model parameters will be reflected in margins calculated on the Effective Date and called on the following business day.
For further information or questions, please email [email protected].