CME Boosts Margins On Several Forex, Rate Futures Contracts

It will cost more to trade some of the active foreign exchange and interest rate futures contracts at CME Group Inc. (CME) due to a recent surge in market volatility.

Margin requirements are being raised in 19 forex markets, including the Japanese yen and Swiss franc. Investors have considered the two currencies as a safe haven while the global economy has weakened, and Standard & Poor's stripped U.S. government debt of its prized triple-A credit rating.

For long-term Treasury futures, it's the second time in the past 2 1/2-weeks that CME has increased collateral to trade the contracts.

Despite the ratings downgrade, U.S. Treasury prices have soared, as the Federal Reserve announced that it is likely to keep the short-term federal-funds rate near zero until at least the middle of 2013.

The changes take effect at the close of business on Thursday. In a memo to traders issued Wednesday evening, the exchange operator said it is raising margins after a "normal review of market volatility to ensure adequate collateral coverage."

Some market participants have argued that similar increases heighten tensions and create even more volatility.

CME's action does not account for any boost in margins imposed by individual clearing firms.

For the Japanese yen, CME is raising initial margins for speculative traders by 20%, to $4,388 per contract. Initial margins for hedgers and CME members will also rise by 20%, to $3,250 per contract.

Initial margins will jump 30%, to $5,400 per contract, for speculative traders of the Swiss franc. Hedgers and CME members must pay an initial margin of $4,000 per contract, also up 30%.

In Treasurys, it will cost speculators of 10-year note futures an initial margin of $2,160 per contract, 19% higher than the current fee, and 31% above the collateral requirement imposed on July 26.

The late July increase was imposed before the White House and Congress reached an agreement to extend the U.S. debt ceiling, averting a default on the government's payment obligations.

Since then, initial margin requirements will have increased 27% for CME classic and ultra Treasury bond futures.

Classic Treasury bond contracts cover maturities of between 15 and 25-years. Ultra Treasury bonds cover maturities longer than 25 years.

-By Howard Packowitz, Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com

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