CME raises margins on swap trades on U.S. default fears

Reuters

HONG KONG, Oct 16 (Reuters) - CME Group Inc raisedthe margins on some products traded on its platform, citinglikely market volatility in the wake of the U.S. debt ceilingdebate.

While CME, the largest U.S. futures market operator, said ina statement that the move is temporary, it is yet anotherinstance of global trading houses taking steps to shieldthemselves from a spike in volatility even as trading volumeshave fallen across financial markets in the first two weeks ofOctober.

"Anticipating possible market moves specific to this event,CME will increase margin for all OTC IRS portfolios by applyingthe Event Risk margin add-on of 12 percent to the base margins,"CME said in a notice posted on its website, reffering toover-the-counter interest rate swaps.

"The additional margin will be implemented across four dayswith the first 3 percent increment beginning the margin cyclefor end of day Wednesday October 16th."

The U.S. Senate prepared for a last ditch effort onWednesday to avoid a historic lapse in the government'sborrowing authority, a breach that President Barack Obama hassaid could lead to default and deliver a damaging blow to theglobal economy.

Last week, Hong Kong Exchanges & Clearing (HKEx) said itwill apply a deeper discount on U.S. Treasuries used as margincollateral, according to a circular from the clearing house.

HKEx, the holding company for The Stock Exchange of HongKong Ltd, Hong Kong Futures Exchange Ltd and Hong KongSecurities Clearing Company Ltd, will now apply a haircut of 3percent versus the current 1 percent for bills with a maturityof less than a year. The haircuts applied to longer-dated billsremain unchanged.

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