By Katy Burne
CME Group Inc. is raising margin requirements for most customers
using its interest-rate swaps-clearing services, the latest sign of
financial institutions girding for possible rate increases over the
next year.
The adjustments, which took effect Monday, mean that clients
whose portfolios call for more margin under the new parameters will
have to put up additional cash and securities to back their
trades.
Such shifts are routine but are closely watched in markets.
Umesh Gajria, executive director in global clearing services for
CME's clearing unit, said the Chicago firm wanted its margin model
for swaps to be better prepared for when interest rates rise to
more normal levels, after spending a protracted period near
historic lows.
Market participants are increasingly focused on when the Federal
Reserve will end its monetary easing and allow interest rates to
rise. When rates rise, bond prices fall.
"The change we have implemented accounts for a smooth transition
from a lower-rate environment to a higher-rate environment," said
Mr. Gajria in an interview.
According to a notice on CME's website, the changes were aimed
at establishing "a robust, long-term approach that yields more
desirable outcomes in both low- and high-interest-rate
regimes."
Interest-rate swaps allow users to hedge or bet on the cost of
future interest payments, and totaled $461 trillion globally as of
the last count by the Bank for International Settlements.
In 2013, a unit of LCH.Clearnet Group said it was making changes
to an algorithm used to calculate its margin methodology for its
interest-rate clearing services. At the time, the LCH unit known as
SwapClear said the changes were "part of its ongoing review of its
margin methodologies to ensure optimal performance under a variety
of market conditions."
Write to Katy Burne at katy.burne@wsj.com