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US debt default? Greece exits euro? CME has plans
July 21, 2011 / 10:26 PM / in 6 years

US debt default? Greece exits euro? CME has plans

CHICAGO, July 21 (Reuters) - Will the United States default on its debt? Will Greece leave the euro?

Large financial firms like Chicago-based CME Group Inc (CME.O) are beginning to make contingency plans in the event these scenarios become a reality.

“It’s going to be fascinating, and quite frankly, there are a number of contingencies that we are contemplating,” CME managing director Derek Sammann told Reuters in an interview. “We have a series of contingency plans in place whereby if there were to be an unforeseen event, yet planned for, we are prepared.”

He said he couldn’t give details.

The White House said on Thursday that momentum was building for a deal to cut the deficit and raise the nation’s $14.3 trillion debt cap, allowing the United States to keep paying its bills. [ID:nN1E76J292]

Euro zone leaders meanwhile threw their support behind a plan to help Greece overcome its debt crisis. [ID:nL6E7IK2VL]

But CME, whose clearing business is literally managing risk, is taking pains not to be caught by surprise, Sammann said.

Should the U.S. default on its debt, Treasuries that CME holds as collateral to back trades at its markets would likely drop sharply in value, disrupting trading as investors scrambled to meet their margins.

Any default in Europe, where CME also operates a clearinghouse, could be damaging as well. And though a Greek exit from the euro is considered unlikely, it could require a revamp of the CME’s popular euro futures contract and leave the market without instruments to trade a new Greek currency.

CME monitors collateral closely and will make “appropriate collateral haircuts ” when needed, CME told Reuters earlier this month.

In the end, Sammann said, CME expects to benefit whatever happens.

“We have to be prepared for what does come, and let me tell you, increasing volatility will be coming from the uncertainty coming out of southern Europe and other parts of the world as well,” he said. “That breeds uncertainty, uncertainty breeds volatility, and volatility is good for business.”

Reporting by Jeb Blount; Editing by Andrew Hay

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