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UPDATE 2-CME raises crude futures margins 4th time since Feb
May 10, 2011 / 3:56 AM / 6 years ago

UPDATE 2-CME raises crude futures margins 4th time since Feb

* CME raises crude margins fourth time since February

* Volatility leads to 67 pct hike in margins since Feb

* Some traders say oil price down on higher margin call (Adds context on increase, exchange figures)

May 9 (Reuters) - CME Group Inc , the world’s largest commodities exchange, raised the margin call for crude futures for the fourth time since February as price volatility soars.

Margins will climb by 25 percent as of the close of business on May 10, boosting the cost of holding positions for hedgers and speculators, a factor some traders said helped bring oil prices down by as much as 2 percent on Tuesday following a $5 a barrel spike a day earlier.

In a two-step hike over six trading sessions in late February and early March, CME Group had already raised the margins on U.S. crude by a cumulative 33 percent, increasing them again on April 15. The higher margin requirements were linked to increased volatility as civil war broke out in Libya, cutting the country’s crude exports.

The cumulative increase in margins on U.S. crude benchmark West Texas Intermediate CLc1 positions since February is 67 percent, from $3,750 to $6,250 per contract.

Initial margins started 2009 at more than $9,000 per contract, after prices slumped from records near $150 a year earlier to less than $40 a barrel, and then shrank over the course of the year as volatility decreased. They are now at $8,438.

The latest move comes after a frenzied week of oil trading that saw U.S. crude prices fall from over $114 a barrel -- the highest level since 2008 -- to $94 a barrel.

That drop was part of a wider commodities sell-off last week, spurred in part by margin increases of 84 percent in silver over the past two weeks.

To view CME's announcement on the complete list of margin requirement changes:

U.S. crude prices, which rebounded from last week’s rout to settle up $5.37 at $102.55 a barrel on Monday, traded down following news of the margin increase, falling $1.37 to $114.53 a barrel at 0307 GMT.

CME, parent of the Chicago Board of Trade, said on its website that it had hiked margins for crude oil futures on the New York Mercantile Exchange by $1,250 per contract. With open interest in the contract topping 1.65 million lots last week, that would amount to an over $2 billion increase in total.

Margins are deposits paid by investors in futures markets, where full payment is made when contracts mature, to an exchange or clearing house to cover the risk of default by that investor and typically are based on the largest most-likely daily market move.

Margins can be used as a tool to curb speculative trading activity, particularly “hot money,” by reducing the number of positions a party can hold leveraging a particular amount of money.

CME also increased Brent financial futures margins by 23.8 percent, while RBOB gasoline RBc1 margins were hiked by 21.7 percent.

The amounts are in U.S. dollars per contract for speculators:

From To Commodity Initial/Maintenance Initial/Maintenance Brent financial futures $7,088 / $5,250 $8,775 / $6,500 WTI financial futures $6,750 / $5,000 $8,438 / $6,250 Heating oil futures $6,413 / $4,750 $8,438 / $6,250 RBOB Gasoline futures $7,763 / $5,750 $9,450 / $7,000 Crude oil future NYMEX $6,750 / $5,000 $8,438 / $6,250 (Reporting by Naveed Anjum in Bangalore, Matthew Robinson in New York and Alejandro Barbajosa in Singapore; Editing by Richard Chang and Michael Urquhart)

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