Energy Initial Margin 

Performance During 2020
DISCLAIMER

The analyses and views expressed represent those of staff in the Risk Surveillance Branch, and do 

not necessarily reflect the views of the Commodity Futures Trading Commission, any of the 

Commissioners, the Division of Clearing and Risk, or other staff at the Commission.

Consistent with Section 8(a) of the CEA, this presentation does not contain data or information that 

would separately disclose the business transactions or market positions of any person and trade 

secrets or names of customers.

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DCR Risk Surveillance Branch 

• Margin model

• Quantitative oversight of DCOs’ margin 

models 

• Daily risk surveillance 

• Hands-on quantitative surveillance of 

exposures for futures and swaps 

• Risk analytics 

• Data, analytics, supervisory stress testing
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Overview

• What is Initial Margin?

• Energy market:

• Cleared futures and options

• Margin requirement evolution in 2020

• Observations
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CCP Risk Management Waterfall
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Margin Coverage

Designed to cover a pre-specified portion of the 

profit & loss distribution Count

Covered by 

margin

Margin 

shortfall

Losses Profits
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Initial Margin

• Helps protect CCP in 

case of a clearing 

member default

• Calculated at a 

portfolio/account level

• Designed to cover the 

cost of unwind most of 

the time

• Market Moves

• Transaction Costs

• Market Impact
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Initial Margin Continued
Risk Weighted Open Interest

9 * (Spread & Delta Adj Open Interest x Dollar Volatility). See Appendix for details.
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Oil – ICEU Brent

*Price Path follows the rolling strategy as opposed to the contract price level. See Appendix for 

details. 

*ICEU stands for ICE Clear Europe
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Oil – ICEU Brent

*See Appendix for details.
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Oil – ICEU Brent

*See Appendix for details.
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Oil – CME WTI

*See Appendix for details

*CME stands for Chicago Mercantile Exchange
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Natural Gas – ICEU Henry Hub

*See Appendix for details.
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Natural Gas – CME Henry Hub

*See Appendix for details.
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Gasoil – ICEU

*See Appendix for details.
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Breaches on Margin

*See Appendix for details.
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Relative Size of Breaches

*See Appendix for details.
Observations

• Margin did not start the crisis at cyclical 

lows

• Margins rose commensurate with risk

• IM for major products performed 

adequately

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Questions

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Appendix • Risk Weighted Open Interest

– Sample Period is 2020-01-01 to 2020-06-01

– Spread & Delta Adj Open Interest – An estimate of aggregate market position that combines futures contracts and related options. Contracts 

along a term structure are combined. Option positions are combined with the underlying contracts via a net delta adjustment. Calendar 

spreads along a term structure are weighted at 10%. 

– Dollar Volatility – An estimate of volatility for the contract using the standard deviation of dollar profit and loss for the contract over the sample 

period.

• Rolling Front Month Charts (Slides 10-16)

– Contract Rolling – The price change shown for the day is for the closest to expiry contract. The series rolls on the day after the formerly 

closest contract expires.

– Initial Margin – Initial margin is for one contract in dollar terms. Initial margin is shown for both a long and short positions as the lower and 

higher initial margin lines respectively.

– Price Path – The price path shown on the charts gives the cumulative dollar profit or loss experienced by holding and rolling one contract over 

the period. It does not show the price level of the index which will be different due to rolling.

– Histogram – The histogram shows the dollar profit and loss distribution for a single rolling contract series from 2018-01-01 to 2019-12-31. 

• Breaches on Margin

– Margins are indexed to 1 on 2020-01-01. A reading of 1 indicates no change in initial margin from 2020-01-01 while a reading of 2 indicates a 

doubling of initial margin relative to 2020-01-01.

• Relative Size of Breaches

– Breach as multiple of margin – The y-axis in the top chart is the size of the breach as a multiple of margin. A reading of 1.5 indicates the loss 

for the day was 1.5 times the initial margin for a contract. The size of the circle represents a relative estimate of the initial margin allocated to 

them by multiplying the contracts open interest by the initial margin required for a single contract. It is not the actual margin allocated to the 

contract. 

– Breach $ Importance in Billions – The size of a contract’s bar is the loss over initial margin for that day’s breach multiplied by the open 

interest for the contract. It does not represent any actual loss suffered by a customer, clearing member, or clearing house. The bar s are 

stacked for the day to indicate to aggregate impact of the breaches.

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