CME CME Group Inc

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.

 
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