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

Reuters

Oct 16 (Reuters) - CME Group Inc, the world'slargest futures exchange operator, said it would temporarilyraise the margins on some products traded on its platform onWednesday, citing likely market volatility as a result of theU.S. debt ceiling debate.

Derivative exchange and clearing house operatorIntercontinentalExchange Inc (ICE) said it wasmonitoring the situation, as did clearing and settlementservices provider Depository Trust & Clearing Corp (DTCC).

The move by CME was yet another instance of global tradinghouses taking steps to shield themselves from a spike involatility, even as trading volumes have fallen across financialmarkets in the first two weeks of October.

"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 statement, referring to over-the-counter interestrate swaps.

The additional margin will be implemented across fours days,with the first 3 percent increment beginning at the end ofWednesday, CME said.

Some market participants using Nasdaq OMX Group Inc's U.S. Treasuries platform, eSpeed, have also had theirmargins raised, a person familiar with the matter said. Nasdaquses the Fixed Income Clearing Corp, a subsidiary of DTCC, forclearing Treasuries, sending it though a clearing member ofFICC.

Nasdaq declined to comment.

The DTCC said it has not yet made any changes to itsapproach to discounts on collateral.

"DTCC continues to monitor overall market activity, with aparticular focus on the Treasury market and are assessing if wewill need to make any types of adjustments in our valuations ofsecurities required for collateral in our clearing fund," theclearing house operator said in a statement.

Similarly, ICE said it was communicating with regulators andworking with its clearing members while monitoring the risks inthe market. It said it would take steps to mitigate those risksas appropriate.

There has been less volatility in the equity markets thanthe derivative markets during the debt debate.

A spokesman for BATS Global Markets said it was "business asusual" for the U.S. equity market operator. No. 1 U.S. stockexchange operator NYSE Euronext declined to comment.

The U.S. House of Representatives was set to vote on a dealover the fiscal impasse on Wednesday after the Senate struck alast minute deal to avoid a historic lapse in the government'sborrowing authority. President Barack Obama has said such abreach could lead to default and deliver a damaging blow to theglobal economy.

Last week, Hong Kong Exchanges & Clearing (HKEx) said itwould 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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