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CME Rule 982 – Risk Management

CME Rule 982 – Risk Management

All clearing members must have written risk management policies and procedures in place to ensure they are able to perform certain basic risk and operational functions at all times. At a minimum, the following areas must be considered in the firm’s policies and procedures, depending on the firm’s size and its business and product mix:

A. Trade Submission and Account Monitoring. Clearing members must have procedures in place to demonstrate compliance in the following areas for trades executed through both electronic platforms and open outcry:

1. Monitoring the credit risks of accepting trades, including give-up trades, of specific customers.

2. Monitoring the risks associated with proprietary trading.

3. Limiting the impact of significant market moves through the use of tools such as stress testing or position limits.

4. Maintaining the ability to monitor account activity on an intraday basis, including overnight.

5. Ensuring order entry systems include the ability to set automated credit controls or position limits or requiring a firm employee to enter orders.

6. Defining sources of liquidity for increased settlement obligations.

B. Additional and/or Alternative Requirements. Exchange or Clearing House staff may prescribe additional and/or alternative requirements in order for clearing members to comply with this Rule.

C. Each clearing member shall promptly provide to Clearing House staff, upon request, information and documents regarding its risk management policies, procedures and practices, including, without limitation, information and documents relating to the liquidity of its financial resources, settlement procedures and operational issues.

D. Each clearing member shall make information and documents regarding its risk management policies, procedures and practices available to the CFTC upon the CFTC’s request.

In addition, all FCM clearing members must comply with the risk management requirements set forth in CFTC Regulation 1.11: Risk Management Program for futures commission merchants.

 

source: CME Rule Book

Globex Orders Transaction Speed Limits

The CME states the following:

Extraordinary and excessive messaging rates generated by a client system can negatively impact all market participants (for example, by creating performance latencies). The CME Globex messaging controls are designed to address this risk by:

  • supporting valid trading activity, and
  • preventing a malfunctioning trading system from impacting the markets

To protect all market participants from the negative effects of excessive messaging, CME Group has implemented the messaging controls for iLink Order Entry as described below.

Application Messaging Thresholds

Message
Reject Threshold
Logout Threshold
Interval
Cancel 1000 MPS 1500 MPS Three-second window.

All other application messages

500 MPS 750 MPS Three-second window.
Message
Reject Threshold
Logout Threshold
Interval
New Order (tag 35-MsgType=D)

Order Cancel/Replace (tag 35-MsgType=G)

Order Status Request (tag 35-MsgType=H)

Quote Request (tag 35-MsgType=R)

New Order Cross (tag 35-MsgType=s)

100 MPS 150 MPS Three-second window.

 

The number of active or queued Order Status Requests (OSR) per iLink session is limited to 50.

 

Message
Reject Threshold
Logout Threshold
Interval
Mass Quote and Quote Cancel Messages 350 MPS 750 MPS Three-second window.
Source: CME Group Messaging Controls

CME Clearing House Rule 949 (Credit Control Policy)

“In order to enhance the risk management tools available to clearing firms utilizing CME Globex®, CME Group (on behalf of CME/CBOT/NYMEX/COMEX) rolled out enhanced Globex Credit Control functionality, commonly referred to as “GC²”, in May 2009.  The purpose of GC² is to provide clearing firms with an additional, backstop risk management tool that allows for flexible administration of limits on the accumulation of daily exposure on CME Globex.  GC² was initially made available to clearing firms on a voluntary basis.    Effective June 25, 2010, it will be mandatory that clearing members employ GC² credit control functionality on every one of their Globex Execution Firms per the phased schedule noted below.

Clearing Members shall comply with all credit control policies developed by the Exchange for customer and proprietary transactions.  Such credit control policies may include, but not be limited to, registration of credit control administrators with the Exchange, definition of credit control limits, and maintenance of written procedures verifying compliance with Exchange credit control requirements.  For general reference purposes, credit control functionality that may be developed for Globex is a system or service pursuant to Rule 578.”

source: Clearing House Advisory 10-153