CME Interest Rate Portfolio Margining
Unparalleled Capital Efficiencies for Futures, Options, & Cleared Swap Portfolios
Q1 2023

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

Capital Efficiencies
Why clients care:•••••

Higher volatility environment has generally increased initial margin levels
Higher rate environment has increased the cost of funding initial margin requirements
Increase in volatility and rates has resulted in a corresponding surplus of net option value for many participants
Implementation of UMR Phase 6 has increased the need for collateral
A potential clearing mandate for Treasury Securities would further increase the need for collateral

What CME Group currently provides:••••

Portfolio Margining between Cleared Swaps and Listed Interest Rate Futures and Options
Record average daily savings of $7.0B achieved in 2022; October 2022 savings averaged a record $8.8B
SOFR and Treasury Options added to the program in December 2022; Eris SOFR Swap Futures added in February 2023
CCP Basis and Invoice Swap Spread Paper – discusses the evolution of the CCP basis and advantages of clearing invoice swap spreads at CME Group
using portfolio margining• Cross CCP Optimization Paper – outlines how levered funds and potentially banks could efficiently put on overlay trades to reduce margin levels at afirm level

Coming soon:• Enhanced Cross Margin program between CME and FICC:
o Allows house accounts of dual CME & FICC members to efficiently hold offsetting Treasury Securities and CME Interest Rate futures
o Pending regulatory approval

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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Portfolio Margining IRS with CME Group Futures and Options
Record margin efficiencies for a capital constrained world

Average Daily Portfolio Margining Savings ($B)

Portfolio margining
eligible products:$8$7.0

Average Daily Savings ($B)$724 IRS
Currencies

SOFR Futures andOptions

$6

$7.3

$5.5

$5.0
$5

$4.5

$4$3

$2.2

$2.1

$2.3

2016

2017

2018

$2$1

Treasury
Futures andOptions

Fed Funds Futures

Eris SOFR SwapFutures

$0
2019

2020

2021

2022

2023 YTD•Through Q1, average daily savings in 2023 have outpaced the record savings achieved in 2022

•SOFR Futures now contributing approximately 25% of the program’s overall savings•

Recently added SOFR and Treasury Options contributed over 15% of the overall savings in March 2023•

14 clearing members actively participating in program, along with over 500 active customer accounts•

Accounts leveraging the portfolio margining offering realize over 40% average savings on IM, with the highest account savings at 100%due to excess net option value offsetting OTC risk

Upcoming portfolio margining pipeline: CME/FICC Optimization
CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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U.S. Dollar Swap Clearing at CME••

950+ unique accounts havecleared USD swaps at CME
400+ participants clearing
over $6.3T notional in SOFRswaps

Average Daily Notional ($B)

CME Group highlights$25$3,000$20$2,500$2,000$15$1,500$10$1,000$5$500$0$0

ADNOpen Interest ($B)

CME Cleared SOFR Swaps

OI*Average daily notional excludes activity related to index conversions and multilateral compression

Why clients are choosing CME Group…
✓ Industry-leading Portfolio Margining solution with our Interest Rate Futures and Options franchise, generating a record$7.0 billion in average daily margin savings during 2022
✓ Over 96% margin savings for Convexity Bias Strategies and 80% savings on invoice spread strategies cleared at CME✓ SOFR Swaps, discounted using SOFR, supported out to 51 years✓ Additionally, CME supports the clearing of USD swaps indexed to LIBOR, BSBY, and Fed Funds (EFFR)CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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Invoice Swaps and Convexity Bias Strategies

Invoice Spreads are trades between Swaps and Treasury Futures✓Invoice spreads are packaged trades involving a CBOT Treasury future and a matching interest rate swap

✓Terms of the swap are designed to match the attributes of the future, including a duration-neutral notional value, effective date matching the lastdelivery date of the future, and maturity date matching the cheapest-to-deliver security✓This swap spread alternative is highly active and averages approximately 100,000 contracts per day in 2022
Receive Fixed (Long): Sept 2021 5-Year CBOT Treasury Future
Pay Fixed: 5-Year Invoice Swap, effective 5-Oct-2022, maturity 30-April-2027

Convexity Bias are trades between single period SOFR Swaps and SOFR Futures✓Convexity bias appears in STIR instruments because of the payoff differences in the futures market versus the OTC swap market
Receive Fixed (long): 1,000 SR3 Sept 2022 Futures
Pay Fixed: $100M 3-Month SOFR Swap effective 21-Sept-2022

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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Invoice Swap Spread Efficiencies
CBOT Treasury Futures vs. Interest Rate Swaps

Average Daily Volume of 100k in 2022
Portfolio Margining unlocks significant efficiencies for Invoice Swap Spreads
Margin requirements for futures and swaps can create significant cost implications for capital consumption and total
cost of trading
Clearing both legs of invoice spread trades together can generate incremental margin savings of 85% or more - further
optimizing capital and cost of trading

Invoice Spread Strategy

Margin if Cleared
Separately

CME Portfolio Margin

Margin Savings

Savings
Percentage

2YR (TU) Treasury vs IRS

65.4

13.6

51.8

79%

5YR (FV) Treasury vs IRS

60.2

11.0

49.2

82%

10YR (TY) Treasury vs IRS
Ultra 10YR (UXY) Treasury vs IRS
Treasury Bond (US) vs IRS
Ultra Treasury (WN) vs IRS

61.8
65.5
69.3
72.0

13.1
10.8
15.8
11.3

48.7
54.7
53.5
61.7

79%
84%
77%
85%

*Actual savings amounts are subject to change

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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SOFR Convexity Bias Trading Analysis
Portfolio margining IRS withlisted SOFR futures results
in indicative margin savingsof 89% to 98%*

Indicative Margin (bps of DV01)

Indicative Margin (bps of DV01)

78.4

Examples of SOFR Convexity
Bias strategies with$1K DV01 in each strategy

61.697%
Savings

89%
Savings

7.0

2.2
Cleared Sperately

Swap vs SR3

8th Quarterly Contract Spread Convexity Bias Package

2nd Quarterly Contract Spread Convexity Bias Package

CME Portfolio Margin

Cleared Sperately

CME Portfolio Margin

Quarterly Contract Spread

Swap Margin w/o PM

Swap Margin w/ PM

Margin Savings

2nd Quarterly Contract Spread

78.4

2.297%

3rd Quarterly Contract Spread

73.3

1.298%

5th Quarterly Contract Spread

69.4

1.698%

6th Quarterly Contract Spread

71.6

1.298%

7th Quarterly Contract Spread

66.7

3.195%

8th Quarterly Contract Spread61.6

7.089%*Actual savings amounts are subject to change

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

7Portfolio Margining of Latin American Swaps vs USD Swaps
Indicative margin savings as percent of notional (in bps of DV01)

5Y TIIE Swap vs 5Y
SOFR OIS

5Y CDI Swap vs 5Y
SOFR OIS

5Y TNA Swap vs 5Y
SOFR OIS

5Y IBR Swap vs 5Y
SOFR OIS

184

297

151

214

96
48%
Savings
ClearedSeperately

92

271
39%
Savings

9%
Savings
Portfolio
MarginClearedSeperately

161

ClearedSeperately

Portfolio
Margin25%
Savings
PortfolioMarginCleared
Seperately

Portfolio
MarginLatAm Swaps vs. SOFR OIS

Margin if cleared
separately

Margin if cleared withPortfolio Margining

Margin savings

Margin savings (%)

5Y TIIE Swap vs. 5Y SOFR OIS

184

96

88

48%

5Y CDI Swap vs. 5Y SOFR OIS

297

271

269%

5Y TNA Swap vs. 5Y SOFR OIS

151

92

59

39%

5Y IBR Swap vs. 5Y SOFR OIS

214

161

5325%

*Actual savings amounts are subject to change

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

8Portfolio Margining of Latin American Swaps vs U.S. Treasury Futures
Indicative margin savings as percent of notional (in bps of DV01)
2Y TIIE Swap + 2Y UST Future
132.7

12%
Savings

2Y ICP Swap + 2Y UST Future
115.1

9%
Savings

116.5

104.6

Capturing margin efficiencies at CME✓ Portfolio Margining solution optimizes
exposures across Interest Rate
Futures and cleared swaps
ClearedSeperately

Portfolio
Margin2Y IBR Swap + 2Y UST Future
100.3

ClearedSeperately

18%
Savings

ClearedSeperately

5Y CDI Swaps + 5Y UST Future
191.0

81.9

Portfolio
MarginPortfolio
MarginClearedSeperately

4%
Savings

182.6✓ Offsets across our 24 cleared IRS
currencies readily available when
setup for swap clearing at CME✓ CME CORE margin tool enables
complex ‘what-if’ analysis between
IRS, OTC FX SIMM, Listed F&O
products via web GUI and API

Portfolio
Margin*Actual savings amounts are subject to change

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

9Portfolio Margining – Operational Highlights
CME Margin Optimizer➢ Ultimate objective of CME optimization is to minimize the portfolio risk and reduce margins for participants by suggesting transfer of F&O position from Basewaterfall to IRS cross-margining program➢ Specifies the ideal allocation of eligible Interest Rate products to move from a Futures segregated account to a sequestered OTC cleared account➢ Clearing Members use the Optimizer to facilitate portfolio margining for both clients and house accounts➢ The tool automates the selection of futures to move and creates a transfer message which is sent to CME to update CME books and records

Current account set-up

Portfolio margining account set-up

Listed F&O segregated account

Listed F&O
segregatedaccountSelected Eurodollar F&O, SOFR F&O,
Treasury F&O, and Fed Fund Futures

OTC customer clearedswaps accountOptimization requires the Listed and OTC
positions to be with the same clearing memberfirm

F&O selected forPortfolioMargining

OTC IRS

CME GROUP PUBLIC

OTCcustomer
clearedswaps
account© 2023 CME Group. All rights reserved.

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Portfolio Margining Tools
Additional features

CME CORE• CME CORE: Clearing Online Risk Engine• Ideal business user solution for Portfolio Margin analysis• Allows firms to calculate margin for their portfolios• Portfolios can be added manually, via csv upload, or via real-time cleared portfolio access• CME CORE’s Optimizer Tool calculates the portfolio margin savings between OTC IRS and Interest Rate Futures• Reports breakdown recommended position transfers••

Enhanced margin optimization:
Optimize portfolios using IRS
trades or Delta Ladders andFutures

Margin Optimization
ReportStreamline margin calculations:
Upload and margin any
combination of IRS trades, IRS
Delta Ladder and Futures

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

11Clearing Online Risk Engine (“CORE”) Risk Tool
CME CORE Capabilities
CME PRODUCTS SUPPORTED• Ideal business user solution for Portfolio Margin Analysis

Futures and Options• Portfolios can be added manually, via csv upload, orvia real-time cleared portfolio access

Agriculture, Energy, Equity Index, FX, Interest Rates, Metals

Interest Rate Swaps
FX Non-Deliverable Forwards, Cash-Settled Forwards and Options
FUNCTIONALITY
Optimizer for Portfolio Margining
Indicative Margin Analysis
Hypothetical Portfolio/Trade Editing
Portfolio/Trade History (out to 30 days)• Margin Matrix feature provides indicative standalonemargins for OTC cleared products• Downloadable reports• Enhanced Analytics includes:• Real-Time Positions – anytime access to CME
OTC cleared portfolios, providing a simple way tocalculate margin requirements and perform “whatif” analysis• Real-Time Margin Dashboard – Anticipate
overnight funding costs via actively updated
margin requirements across accounts

Incremental Margin
Estimator/Delta Ladders

https://www.cmegroup.com/clearing/margin-services.html

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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ContactRates and OTC Products:
Steve Dayon
Jake Bigos

Steven.Dayon@cmegroup.com
Jacob.Bigos@cmegroup.com

Post Trade & Optimization Services:
Steve Ishmael
Maddie Lindgren

Stephen.Ishmael@cmegroup.com
Madeline.Lindgren@cmegroup.com

CME GROUP PUBLIC© 2023 CME Group. All rights reserved.

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Disclaimer
All data and figures sourced from CME Group and are current as of March 31, 2023 unless stated otherwise.

The content in this communication has been compiled by CME Group for general purposes only and is not intended to provide, and should not be construed as, advice. Although every attempt has been
made to ensure the accuracy of the information within this communication as of the date of publication, CME Group assumes no responsibility for any errors or omissions and will not update it.
Additionally, all examples and information in this communication are used for explanation purposes only and should not be considered investment advice or the results of actual market experience. All
matters pertaining to rules and specifications herein are made subject to and superseded by official CME, CBOT, NYMEX and COMEX rulebooks. Current rules should be consulted in all cases including
matters relevant to contract specifications.
CME Group does not represent that any material or information contained in this communication is appropriate for use or permitted in any jurisdiction or country where such use or distribution would becontrary to any applicable law or regulation. In any jurisdiction where a CME Group entity is not authorized to do business or where such distribution would be contrary to the local laws and regulations,this communication has not been reviewed or approved by any regulatory authority and access shall be at the liability of the user.
CME holds the following international authorizations for its clearing house operations:
In Australia, CME has a Clearing and Settlement Facility License.
In Canada, CME is exempt from the requirement to be recognized as a clearing agency in Alberta, Ontario, and Quebec.
In Hong Kong, CME is authorised to provide Automated Trading Services to Hong Kong investors via its GLOBEX system, and its CME Clearing System under Part III of the Securities and Futures
Ordinance.
In Japan, CME has a Foreign Financial Instrument Clearing Organisation license under the Financial Instruments and Exchange Act of Japan.
In Mexico, CME is a recognized foreign CCP.
In Singapore, CME is a recognized clearing house under the Securities and Futures Act (Cap. 289) ("SFA"). Save as aforesaid, none of the CME Group entities are licensed to carry on regulated
activities under the SFA or to provide financial advisory services under the Financial Advisers Act (Chapter 110) in Singapore.
In Switzerland, CME is a recognized foreign CCP.
In the EU, CME is a recognized third-country CCP in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central
counterparties and trade repositories (EMIR).
In the UK, CME offers clearing services under the Temporary Recognition Regime of Central Counterparties.

CME Group, the Globe Logo, CME, Globex, E-Mini, CME Direct, CME DataMine and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Boardof Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity
Exchange, Inc. All other trademarks are the property of their respective owners.
Copyright © 2023 CME Group Inc. All rights reserved.
Mailing Address: 20 South Wacker Drive, Chicago, Illinois 60606

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