Margins Types

There are four basic components for the margin: Initial Margin, iIdividual Member's Margin, BME CLEARING Margin and a contribution to the Default Fund by the Members.

Initial Margin

This is calculated for each account. The Initial Margin is posted in BME CLEARING for all open accounts in the Central Register and it is posted at a Clearing Member level if it is a seggregated account in the Member's Second-Tier Register. This margin covers the risk of each position in extreme but plausible conditions.

How to calculate the initial margin:

There are 3 clearing groups for gas contracts:

  • Gas delivery (Day-Ahead contracts with 2 days until expiry).
  • Short Term Natural Gas (Day-Ahead contracts, Weekly and Monthly theoretical cascade).
  • Long Term Natural Gas (Annual, Seasonal, Quarterly and Monthly contracts).

Different intervals are established within each margin class:

Theoretical Cascade

Contracts which the delivery period are totally or partially within the delivery period of another contract, with opposing sign positions, will be given offsetting priority, and the spread margin will be 0.

On the basis of the Theoretical Cascade process defined in the BME CLEARING's Rule Book, Theoretical Cascade or any Instruction substituting this, and in accordance with the rules defined in this Instruction, contracts are broken down into smaller parts (contracts with a shorter delivery period), and the identical contracts arising from this process with an opposing sign are offset, and the result is the offset position (delta purchased or delta sold) with a spread margin of 0.

Unlike the actual cascade, the Theoretical Cascade will be carried out for contracts in delivery and for contracts moving to front:

List of contracts:

  • Monthly contracts will be broken down into Day-Ahead contracts.
  • Weekly contracts will be broken down into Day-Ahead contracts.

Margins due to delivery

These are calculated based on the balances obtained in the holder's physical delivery/receipt file.

The forecasted deliveries for D are prepared on D-2 at 08:00 pm.

All sales and purchases are aggregated corresponding to daily partial deliveries for day (D) on Day-Ahead Contracts and Futures Contracts with delivery at D, for each holder and VBP registered in BME CLEARING.

Margins are required in D-2 so they can be posted in the D-1 multilateral settlement. Therefore, for the D nomination, at 06:00 pm in D-1, the net disposing balance Member would already have the margins posted and BME CLEARING could face a Default. Likewise, the net acquiring balance Member would forward in D-1 the margins to cover an imbalance.

In terms of systems, this margin is calculated as usual, however, it corresponds to a different array that would not have offsetting percentage with the other margin classes, except for the case when it was covered by a positive Variation Margin Pending in the segment.

Intra-Commodity Spread

Different opposing contracts within a margin class are offset: an example of gas will be, a long March contract with a short Quarterly contract. To this end, the offset MWh/d are calculated and the initial margin offset within the same margin class is applied to them, and the non-offset MWh/d are calculated and the full margin is applied to them.

The intra-array offset within the same margin class, which is applied within each group of contracts, is the maximum between a fixed amount and the price difference of the contracts.

If there is more than one pair of contracts to be offset, priority is given to the pair of contracts with the same expiry date. In this case, the contract types with the higher multiplier are first offset. If there are contracts with a different expiry date, priority is given to the expiry pair having the closest expiry dates to each other, since they are the most correlated. If there is more than one pair and the distance between contracts of the same pair is the same between pairs, the expiry date, which is furthest, is first dealt.

Inter-Commodity Spread

There is also offset within different margin classes. The margin credit or discount is calculated taking the minimum fluctuation of each group as a reference.

A monthly review is conducted of price volatilities, and parameters are established for the margin calculation. They are published in the Circular "Parameters to use for the calculation of the initial margin".

Cash Adjustment

Contracts which do not have a daily Variation Margin (Balance of the Month, Balance of the Week and Day-Ahead contracts) are also subject to Mark-to-Market adjustment margin. In other words, these contracts have not had a daily Variation Margin but the market value of these contracts has varied with regard to the price that was originally contracted. For this reason, this variation margin is not settled in cash but is taken into account, to a greater or lesser extent, when calculating the initial margin

Individual Fund

This is only requested to Clearing Members. It consists of various items depending on the type of Member and its solvency, usage of limit risk and extraordinary situations arising (in this case the margin is called extraordinary margin). This type of margin only covers obligations from the Clearing member and can never be used to cover another Member’s default.

Default Fund

Each clearing member must contribute with a fixed amount to the Energy contract group Default Fund, this will depend on the type of Member:

This is a joint liability margin. It will be used only to cover the Default of another Clearing Member in case all other margins from the Clearing Member plus the BME CLEARING margins are not sufficient to cover the obligation.

On a monthly basis, BME CLEARING will perform a Stress Test, comparing the risk in stress test situations for each Clearing Member in the Energy group Default Fund. In accordance with the corresponding Circular, an additional individual margin will be requested to the Clearing Member, if necessary.


BME CLEARING establishes in its Circular the sum of its specific Shareholders’ Equity to be posted per segment, in the event of a Default. These sums will also be specified on the BME CLEARING Balance Sheet separately from the rest of the Clearing House Shareholders’ Equity.


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