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FRM Part I · FRM Exam Part I · Central Clearing

A clearing member holds a long position of 100 futures contracts cleared through a central counterparty (CCP). Each contract has a size of 50 units. The futures price moves from 80.00 at the previous settlement to 78.40 at today's settlement. Which of the following describes the variation margin flow for the day?

The long clearing member pays 8,000 to the CCP. The price fell by 1.60 per unit, and across 100 contracts of 50 units each the loss is 8,000. Variation margin transfers daily mark-to-market losses to the CCP, which passes them to gainers.

  1. AThe clearing member pays 8,000 to the CCPCorrect
  2. BThe clearing member receives 8,000 from the CCP
  3. CThe clearing member pays 1,600 to the CCP
  4. DThe clearing member receives 1,600 from the CCP

Explanation

Price change is 78.40 - 80.00 = -1.60 per unit. Loss on a long position = 1.60 x 50 x 100 = 8,000. Variation margin is paid by the party with the loss, so the member pays 8,000. Ignoring the contract size gives 1,600, which is wrong.

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