CME Triples Margin on Swiss Franc Futures

By Katy Burne 

A unit of CME Group Inc. tripled margin requirements for traders using futures tied to the Swiss franc, in the latest sign of financial institutions reacting to wild rides in the fallout from Switzerland's currency moves.

The Chicago exchange and clearinghouse operator said it was implementing changes in the money it collects to back the currency derivatives, according to an advisory notice it sent to clearing members and risk managers on Thursday.

Taken together, the moves mean traders will have to post triple the margin they did on Wednesday, before the Swiss National Bank's removal of its cap on the Swiss franc's exchange rate against the euro. The surprise move sent the franc's value soaring and sparking losses across trading firms and brokers.

"Margin changes are routine in CME Group markets and set based on volatility," said a CME spokesman in a statement.

Clearinghouses are entities that stand between buyers and sellers of financial contracts, absorbing losses if either side can't fulfill the terms of a contract. They collect cash and collateral on a daily basis to ensure traders are putting up enough money so that losses from one firm don't reverberate through the financial system.

CME said in its notice that the changes came "as per the normal review of market volatility to ensure adequate collateral coverage" for the clearinghouse. No risk-methodology changes were detailed in the notice, but there were changes in the firm's risk measures known as "volatility scans" that take into account a range of scenarios.

The company told members that it was increasing margin requirements for euro/Swiss franc futures to CHF4,050 per contract as of Friday's close, or 3.27% of the contract's notional size. That is up from CHF2,700 at Thursday's close and from CHF1,350 Wednesday, or 1.08% of the contract, before the cap was removed.

Additionally, CME hiked margin requirements on futures and e-micro futures on the Swiss franc against the dollar to 4.62% of the contract notional sizes, taking effect after Friday's close, versus 1.54% Wednesday.

Write to Katy Burne at [e-mail]

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