CME raises margin requirements
By Doug Cameron in Chicago
Published: August 17 2007 03:00 | Last updated: August 17 2007 03:00
The CME Group, the world's largest derivatives exchange, yesterday increased margin requirements across a range of products, limiting potential trading losses from increased market volatility.
While exchanges review the leverage which traders can employ on a daily basis, the scope of the CME's move was viewed as unusual.
"What's interesting is the across-the-board increase," said John Lothian, head of electronic trading at The Price Group in Chicago. "Normally, you would have one market or sector show an increase."
The changes took effect after yesterday's market close, and apply to 24 of the CME's 400-plus contracts, including those based on currencies, interest rates and stock indices.
Futures markets have priced in as many as two rate cuts by the US Federal Reserve, prompting particular volatility in contracts based on Fed Funds, which were among those covered by the CME's tighter margin requirements.
The affected contracts included a range of currency pairs such as euro/yen and sterling/yen, as well as some short-term interest-rate products.
The CME described the move as "normal" and maintained its member firms continued to meet their trading obligations.
The market was rattled this week when Sentinel Management Group, a small Illinois-based asset manager, said it was freezing client accounts.
The firm's clients included small brokers operating on the CME and other exchanges, raising concerns their trading ability could be curtailed. Sentinel told clients on Wednesday that it was seeking to sell assets so that funds could be returned, though did not identify potential buyers.
Traders said the CME's move was unlikely to impact the record trading volumes seen across global derivative exchanges in the wake of market volatility.
Futures brokers typically require clients to post margin over and above the CME's so-called "performance bonds", generating excess liquidity which was expected to provide a cushion against any reduced trading capability.
However, the CME share price suffered one of its sharpest declines since last month's merger of the Chicago Mercantile Exchange and the Chicago Board of Trade.
The stock had slipped more than 5 per cent to $509 by midday in New York, losing 16 per cent since reaching a 52-week high of $609.96 just a week ago. The Intercontinental Exchange, which lost out in a bidding war for the CBOT, saw its share price slump almost 12 per cent, and the NYSE Group fell almost 8 per cent.
Copyright The Financial Times Limited 2007 |
