ICE US Futures publishes margin parameter changes for US NGLs and Petchems - worth understanding the structure
Here at DCM, we have been focused more on the market compliance rules lately and have let the risk management portions of the rulebooks be a lesser focus. Bad on us, because the risk management parts of the rulebook really bite you when the markets go into hypervolatility. And today's notice from ICE US Futures here is one example.
First, the notice is for changes in the ICE US margins on certain contracts - but the notice immediately references that "For each of the IFUS Energy Contracts, ICE Clear Europe determines the margin rate that is charged to clearing members that carry positions in these contracts. The Exchange minimum margin requirements for outright and straddle positions are based upon the ICE Clear Europe margin rate". As many can remember, there have been significant debates between the US and EU regulators over the past several years as to the proper margin calculations - ICE uses a single margin engine but does adjust US and EU for different "MPOR" - Margin period of Risk (one day for OIl and a number of US energy related products and emissions).
Second, the ICE Europe margin instructions for energy have multiple links to .csv files for relevant risk data - I assume trading desk risk managers have reviewed this. What is interesting here is that the "scanning ranges and tiering" data file is dated April 27. So you have new files to be effective Monday that are on the website now. There are a number of NGL contracts that have significant discount changes - the shift in these rates is both up and down down. (I would also note that the power references were changed earlier this week).
In addition, the inter-month spread rates were changed (increases across the board), strategy spread rates changed (frequently in excess of 25% and some in excess of 100%), and inter-commodity spread rates as well - and while the notice covered NGLs and Petchems the biggest changes I noted in inter-commodity spread rate changes was in wet freight cargo.
This is just to note that,
a. Smaller shops need to know the ICE EU margin process if they are trading energies;
b. ICE is publishing the changes the Friday before they go into effect - put these in place for remote operations across a weekend will be a pain if you do your own internal version of the calcs; and
c. all traders should think through the expected market impacts of changing margin calcs in the NGLs markets (which are less liquid) in this hypervolatile market.
The ICE EU risk management (margin) page is here