December 14, 2011

Javelin and CME clear IRS in less than 2 seconds

Story from the FT, here (subscription I think). The gist of it is:

  • Javelin traded a range of maturities of IRS
  • They sent them to the CME CCP
  • CME cleared them in less than two seconds

The article doesn’t give enough detail on whether these were Dealer – Dealer trades, or Client – Dealer trades, and of course doesn’t say that if any new trade generates a margin call the 2 seconds becomes an hour ;-)

It also doesn’t say if in those 2 seconds, CME re-calculated the entire IM requirement, or just applied a simple mark-to-market decision process of an incremental trade. Nor does it say what the size of the existing portfolio was, that these trades were added in to.

Update: The video at Kevin McPartland’s website answers some of the questions, there were client – dealer trades. I left a comment with questions like these:

  • Were these block trades?, if so, when did allocation take place?
  • Did CME recalculate the entire IM requirement for each trade?
  • What method was used to assess the risk on each incremental trade?
  • How did confirmation / affirmation fit into the process?
  • How many pre-existing trades were in the cleared portfolio?
  • Was the margin account pre-funded?
  • How long does registration take in the event of a margin call?


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