ICE Risk Model 2.0

ICE CLEAR U.S.

ICE Risk Model 2.0 Methodology

ICE Risk Model (IRM) 2.0 utilizes a Filtered Historical Simulation (FHS) Value-at-Risk (VaR) approach that models the behavior of a portfolio as a whole rather than measuring risk on an instrument by instrument basis. IRM 2.0 leverages a portfolio-level perspective by capturing all relationships and diversifying effects within a portfolio. Unlike IRM 1.0, there is no need to configure the thousands of separate array parameters.

IRM 2.0 Initial Margin Flow

Risk Factor

Risk Factors are representations of the factors driving valuation changes. They may be a price, return or rate.

Risk Factor Construction

Risk Factors are constructed from prices of observable instruments.

Scaling & Scenarios

The return Risk Factors are scaled in order to produce scenarios that reflect current market volatility and incorporate various risk and regulatory requirements.

Instrument P&L Scenarios
Instrument P&Ls simulations are generated by using top day risk factors derived prices, and scenario prices derived using scaled risk factor scenarios. Pricing functions are used in the transformation of the Top Day Risk Factors (Base Price) as well as Scaled Scenarios (Simulated Price) back to observable instrument prices.

Initial Margin

The instrument P&L simulations are aggregated at the portfolio level and then combined with other components designed to comply with regulatory and risk requirements producing a final initial margin.

IRM 2.0 Initial Margin Flow

IRM 2.0 Model Components

Total IRM 2.0 Margin Requirement

The overall IRM 2.0 portfolio margin requirement comprises two components, the portfolio’s Initial Margin (IM) and separately, the portfolio’s Liquidity Risk Charge (LRC).

In turn, the IM and LRC components encompass sub components which are designed to capture specific risk elements. Collectively, the risk elements support the deep granularity of the overall IRM 2.0 model.

IRM 2.0 IM Sub-Components

IRM 2.0 IM consists of several sub components which collectively estimate portfolio market risk based upon the network of instrument pricing relationships within the portfolio.

Base IM

The Base IM represents the base market risk derived from the FHS and portfolio time series returns.

Correlation Stress Charge (CSC)

The CSC incorporates the potential impact of extreme zero correlation between the portfolio instruments.

Diversification Benefit Cap (DBC)

Similar to a spread charge found in IRM 1.0, the DBC value represents an increase in initial margin that ensures offsets between different product groups do not exceed specific thresholds required by regulators in certain jurisdictions.

Outright Margin

Instruments subject to Outright Margin are margined in their own right separate from other instruments

Liquidity Risk Charge Sub-Components

The Liquidity Risk Charge (LRC) estimates the cost of liquidating positions over the course of the margin horizon and consists of two the sub components Concentration Charge (CC) and Bid-Ask Charge (BAC).

Concentration Charge (CC)

The CC covers the additional risk associated with liquidating concentrated positions that exceed a predetermined volume threshold.

Bid-Ask Charge (BAC)

The BAC provides protection against liquidation costs arising from crossing the bid-ask spread of any given market. The Bid-Ask Charge is applicable to all positions in all portfolios regardless of size.

IRM 2.0 Model Components

Operational Consideration

Prior to launch, ICUS will operate both IRM 2.0 and IRM 1.0 in parallel for a limited period for each product group implementation stage to ensure a smooth transition for members and vendors.

  • Once the production parallel run period has concluded, ICUS will cease to publish IRM 1.0 Array Files for the migrating ETD product group. More specifically, the current ICUS IRM 1.0 Array file will no longer include the products migrating to IRM 2.0
  • ICUS will use IRM 2.0 to calculate initial margin & liquidity risk charge for the migrated ETD products while all other ICUS ETD futures and options will remain on IRM 1.0. This will result in scenarios where individual portfolios consist of holdings subject to both IRM 1.0 & IRM 2.0 margin estimations simultaneously
  • Clearing Members can use the new IRM 2.0 data files to reconcile their margin calculation against the Clearing House margin calculation
  • ICE will be launching ICE Portfolio Analytics (IPA), a new web-based initial margin calculator and reporting application that will support both IRM 2.0 and IRM 1.0
  • Both IRM 2.0 IM and LRC calculations are externalized for Clearing Members and vendors wishing to replicate IRM 2.0 in their proprietary back office systems. For access to the external specifications please contact your FCM or ICE account management representative.

Reports & Data File Changes

InformationReport / Data File
New Reports
  • Margin Summary (MMMS)
  • IRM 2.0 Margin Detail (MMIRM)
  • IRM 2.0 Margin Positions Input Data (MMIPA)
New Data Files
  • IRM 2.0 IM Input Data XML
  • IRM 2.0 LRC Input Data XML
Reports and Data Files to be Modified
  • Product Reference Data File (GSPD)
  • Standing Requirements Report/Data File (MBSR)
  • ICE IRM 1.0 Array File for ICUS (NYBmmddF.SP6|csv)
Reports and Data Files to be Decommisioned
  • None

IRM 2.0 Contacts

ICE Clear U.S. Operations Helpdesk:

+1 312-836-6777 / [email protected]

ICE Clear U.S. Program Support Team:

[email protected]

ICE Portfolio Analytics for Clearing:

+1 770-738-2101(option #6) / [email protected]