ICE Launches Latest Phase of its VaR-Based Portfolio Margining Methodology ICE Risk Model 2

Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of technology and data, and home to the largest and most liquid markets in the world to trade and clear energy derivatives, today announced that ICE has launched the latest phase of its Value-at-Risk (VaR)-based portfolio margining methodology, IRM 2.

IRM 2 has now been introduced for the first phase of energy clearing. IRM 2 now includes over 1000 energy futures and options contracts across oil, natural gas, LNG, power, emissions, and freight. ICE’s benchmark Brent, Gasoil, Midland WTI (HOU), Murban, TTF, and EUA contracts are now margined under IRM 2, including key related spread contracts. The list of energy products now cleared under IRM 2 is listed in full via our ICE Risk Model 2 page.

By utilizing a Filtered Historical Simulation VaR approach which models the behavior of a portfolio, IRM 2 is designed to capture all relationships and diversifying effects within a portfolio.

The IRM 2 model is designed to be responsive to changing market conditions, providing stability through different volatility conditions and avoiding “big step” margin changes through anti-procyclical features. In addition, the model is designed to be resilient against stress events and correlation breakdown, as well as adjusting for seasonality where appropriate.

“By assessing risk on a portfolio basis, IRM 2 is able to calculate risk precisely, allowing us to offer customers greater margining benefits when the portfolio is diversified or hedged,” said Hester Serafini, President of ICE Clear Europe. “ICE has invested heavily in its world class clearing operations technology and risk management. As the largest clearing house in the world to clear energy products, we work every day to provide customers with capital efficient, risk appropriate clearing.”

“The energy markets are a matrix of interconnected and correlated positions covering different exposures across oil, gas and environmentals, as well as by region and quality specifications,” said Trabue Bland, SVP, Futures Exchanges at ICE. “IRM 2 is a huge milestone for our customers, with its portfolio-based assessment of risk well designed to appreciate these correlations and producing margin offsets to allow for capital efficient and risk appropriate trading and clearing. We’re working closely with customers as the new model is rolled out and we thank all our customers for their work with us through this process.”