CME Cuts Margin for Crude Oil Futures - Analyst Blog
August 26 2011 - 12:05PM
Zacks
Reuters reported that CME Group Inc. (CME) has
cut its margin requirements for crude oil futures in the US by
about 4% given the consistent price decline and the gradually
diminishing volatility in the market.
Margins are primarily the deposits that investors pay to the
exchange to book their futures contracts and pay the full amount on
maturity of these contracts. Accordingly, CME has reduced its
maintenance margin on crude oil future contracts to $6,000 per
contract from $6,250. The new margins have been effective since
early this week.
Although CME has raised its crude oil futures margin
requirements four times since February this year due to higher
volatility, prices have been witnessing sharp declines since early
this month. As a result, crude futures prices have declined to
about $85.30 per barrel from about $99 and $114 a barrel, and
yesterday it further plunged below $85 per barrel.
However, earlier this month, CME also hiked its daily trading
price on its corn futures and derivatives as soon as it received
the green signal from US’ Commodity Futures Trading Commission
(CFTC) to raise the limit on the trading price of the
commodity. The hiked price was initiated earlier this
week.
Accordingly, the trading price band for CME’s corn derivatives
is proposed to range within 40–60 cents per bushel, a pick up from
the prior 30 cents. The increased price limits will further boost
the market and add to CME’s volumes.
Overall, we believe that a gradual growth in its derivatives
market in all sectors are crucial for CME’s long-term growth and
sustenance, primarily when NYSE Euronext Inc.
(NYX) is on the verge of becoming a global derivative exchange
leader with its long awaited amalgamation with Deutsche Boerse.
Even other operators such as IntercontinentalExchange
Inc. (ICE) and CBOE Holdings Inc. (CBOE)
are making good attempts to penetrate the emerging markets.
Moreover, the recent announcement of the French and German
leaders to initiate a financial-transaction tax in September this
year poses ample risk on the volumes of the exchange operators, who
generally operate in a cost-sensitive and high-frequency trading
scenario. The financial-transaction tax is primarily targeted
toward the securities trade, such as equities, bonds and
derivatives, carried out by the exchanges in the Europe. These
factors could hamper the productivity and operating leverage of the
exchange operators in future.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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