CME gets OK on new margin rules to blunt cost of swaps clearing
Oct 16 (Reuters) - CME Group Inc said on Tuesday it has won regulatory approval for new rules that could blunt an expected rise in margining costs as regulators force as much as $400 trillion in over-the-counter interest-rate swaps into clearinghouses.
CME's new rules, which take effect on Nov. 19, allow hedge funds and other trading firms to back rate swaps, Treasury futures and Eurodollar futures cleared at CME as a single pool of trades, rather than separately. The result will be "significant capital efficiencies for certain portfolios," CME said in a statement.
Starting next year, Dodd-Frank Wall Street reform will require most interest-rate swaps to be guaranteed at a regulated clearinghouse, forcing traders to come up with new collateral to back the contracts.
A Tabb Group report in October put the extra cost of margining interest-rate swaps, without new rules at CME and other clearinghouses, at a little more than $2 trillion.
The same report estimated that CME's so-called portfolio margining could trim that extra cost by at least $618 billion. CME did not provide its own estimate.
Currently, hedge funds and other so-called buyside customers must put up margins separately for swaps and futures. With portfolio margining, traders usually end up posting less collateral because some of the interest-rate risk of their swaps position is offset by that of their futures position.
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