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 katy.burne@wsj.com
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