CME Lowers Margin Requirements for Natural-Gas Futures

   By Nicole Friedman 
 

NEW YORK--Exchange operator CME Group Inc. (CME) lowered the amount of collateral required to trade the benchmark natural-gas futures contract on Thursday, as daily moves in the market quieted down from wild price swings seen earlier in the year.

CME, which owns the New York Mercantile Exchange, said natural-gas margins for the front-month contract will be reduced by 25%, effective at the close of trading on March 14, in a notice emailed Thursday.

Speculative investors in one benchmark natural-gas contract must now put up a deposit of $3,300 to open a position and maintain $3,000 of that to keep that position overnight. That is down from the previous initial margin of $4,400 and maintenance margin of $4,000.

Exchanges often boost so-called margin requirements after periods of volatile trading. Margins are intended to cover 99% of the possible price moves within a trading day or multiple trading days, according to CME.

The CME raised the amount of collateral required to trade natural gas several times this winter as the market grew increasingly volatile in response to unusually cold weather, which boosted demand for the heating fuel. Front-month natural-gas prices moved 5% or more on 16 days in January and February. This month, prices have yet to move 4% or more in a single day.

Natural gas for April delivery settled down 10.7 cents at $4.383 a million British thermal units on the New York Mercantile Exchange. One contract consists of 10,000 mmBtu.

Write to Nicole Friedman at [e-mail]

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