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

HONG KONG Wed Oct 16, 2013 3:48am EDT

HONG KONG Oct 16 (Reuters) - CME Group Inc raised the margins on some products traded on its platform, citing likely market volatility in the wake of the U.S. debt ceiling debate.

While CME, the largest U.S. futures market operator, said in a statement that the move is temporary, it is yet another instance of global trading houses taking steps to shield themselves from a spike in volatility even as trading volumes have fallen across financial markets 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 applying the Event Risk margin add-on of 12 percent to the base margins," CME said in a notice posted on its website, reffering to over-the-counter interest rate swaps.

"The additional margin will be implemented across four days with the first 3 percent increment beginning the margin cycle for end of day Wednesday October 16th."

The U.S. Senate prepared for a last ditch effort on Wednesday to avoid a historic lapse in the government's borrowing authority, a breach that President Barack Obama has said could lead to default and deliver a damaging blow to the global economy.

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

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