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CME Preempts NYSE Treasury Derivative Trading, Offers 65% Margin-Reducing Treasury Trading Solution

Tyler Durden's picture


Who said the CME can only hike margin rates? Today, the Chicago Merc announced that is "unveiled a
cross-margining plan that would help customers trading both interest
rate and Treasury futures, as the world's largest derivatives exchange
prepares for more competition." The step is a preemption of a comparable product to be offered by its recently sold competitor, the NYSE Borse. "The New York Stock Exchange parent expects in March to launch NYSE Liffe U.S., a rate futures market, at the same time as its partly owned New York Portfolio Clearing (NYPC) clearinghouse for the products." In addition to confirming that this step pretty much puts an end to persistent rumors that the CME may overbid the DB for the NYSE, what it also shows is that the exchange is perfectly willing to do anything it wishes when it comes to margin rules as suits it. "
CME's new membership class -- called Financial
Instruments Clearing Membership (FICM) -- would provide margin benefits
of up to 65 percent between interest rate futures and Treasury
securities, it said
." While we have yet to see a practical example of what this means, we predict that the implication is a major drop in margin requirements when trading products determined to be a national interest such as Treasurys.

From Reuters:

[The FICM] is expected to launch by the end of the current quarter, CME said. The company named four trading firms that have tested the offering and are working toward becoming FICM members.

Underlining the importance of derivatives businesses, Germany's Deutsche Boerse bid this month to acquire NYSE Euronext -- a combination that would dominate European futures trading and squarely take on CME on the global stage.

Before this happens, however, expect for several more rounds of margin hikes in any commodity that threatens to put a dent in the Fed's ludicrous worldview that record prices on the commodity board are driven by "demand."

Full press release from the CME:

New Financial Instruments Clearing Membership (FICM) Provides Margin Benefits of up to 65 Percent

CHICAGO, Feb. 28, 2011 /PRNewswire/ -- CME Group,
the world's leading and most diverse derivatives marketplace, announced
the creation of a new clearing membership class for interest rate
futures allowing for significant margin offsets between CME Group
Interest Rate futures and U.S. Treasury securities. The Financial
Instruments Clearing Membership (FICM),
which is expected to be offered by the end of the first quarter, will
provide margin offsets of up to 65 percent to qualified firms that trade
both U.S. Treasury securities and CME Group Interest Rate futures

"We are establishing this new clearing membership category to provide
customers who trade both U.S. Treasury securities and CME Group's Interest Rate futures
with greater capital efficiencies, enabling firms to trade cash/futures
strategies in a highly cost-effective manner," said Bryan Durkin, CME
Group's Chief Operating Officer and Managing Director of Products and
Services. "With our interest rate complex open interest at 37 million
contracts or $30 trillion in notional value, the new FICM membership
provides a strong value proposition for our global customers who trade
these products."

The FICM membership category leverages existing infrastructure of
firms that are active in both the U.S. Treasury securities and CME Group
Interest Rate futures markets. The new membership class combines the
benefits of CME Group's deep, liquid Interest Rates futures markets with
our industry leading risk management financial safeguards and proven
track record of CME Clearing.

A number of trading firms, including Breakwater Trading, Endeavor
Trading, Henning-Carey Proprietary Trading, and HTG Capital Partners,
have tested and validated the FICM membership and are working with CME
Group to become FICM members. A full CME clearing member must sponsor
the FICM and act as the firm's facilities manager to transact in the
U.S. Treasury securities market.

To view a video of Derek Sammann, Managing Director of Interest Rate and FX Products, talking about the new FICM, visit:


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Mon, 02/28/2011 - 13:39 | 1004216 CPL
CPL's picture

Like watching a shell game.

Mon, 02/28/2011 - 13:42 | 1004227 Herd Redirectio...
Herd Redirection Committee's picture

Who wants to see a Commodity Exchange go bust during their lifetime?  Esp the Crimex? 

Me too!

Check out the latest from the Capital Research Institute "The Elephant in the Room":

"We have all heard the expression at one time or another. An uncomfortable fact that every one is (at least dimly) aware of, yet is not spoken of. When discussing the global economy, the turmoil and the unrest the world is experiencing the elephant in the room is undoubtedly the Federal Reserve. The Fed (and other central banks) have unleashed the most recent spate of food inflation on the world through their ZIRP (zero interest rate policy) and use of ‘quantitative easing’ (which simply put, is money printing).

Money that would have been kept in savings accounts has been withdrawn (because it earns no interest) and invested largely in stocks, and commodities. On top of that, more money has been conjured into existence, without an increase in real economic activity to accompany it, leaving a larger amount of money chasing the same pile of goods and services. The result, obviously, is a loss of purchasing power, as each newly conjured dollar buys less than the one before it.

Ben Bernanke has come out and attempted to justify his actions, but what has been lost in all his posturing? That the criticism of his policies are legitimate!"

Mon, 02/28/2011 - 13:39 | 1004220 plocequ1
plocequ1's picture

Let me guess. The Taxpayer?

Mon, 02/28/2011 - 13:41 | 1004221 Oh regional Indian
Oh regional Indian's picture

Henceforth, everytime I think of species die-off, I'm going to mentally visualize arbitrage as a part of the picture.

Arbitrage is a fast disappearing species. If you don't have the teraflops, you might as well just get your flip-flops. And watch.


Mon, 02/28/2011 - 13:41 | 1004223 Chuck Bone
Chuck Bone's picture

The clearest possible indication of a bubble is an excess of credit...

Mon, 02/28/2011 - 13:43 | 1004225 EscapeKey
EscapeKey's picture

Anything to fuel the ponzi.

Mon, 02/28/2011 - 13:42 | 1004226 Bob
Bob's picture

While we have yet to see a practical example of what this means, we predict that the implication is a major drop in margin requirements when trading products determined to be a national interest such as Treasurys.

Sounds perfect!  Bueller . . . ?

Mon, 02/28/2011 - 13:45 | 1004232 Agent 440
Agent 440's picture

OK, can someone kindly put this in pidgin for me?  Does this mean a partial relocation of Wall Street to Chicago?  It seems that in the changing enviroment the Chicago is well postitioned to be one of the first and largest scavengers to the NYSE corpse.

Mon, 02/28/2011 - 13:47 | 1004235 disabledvet
disabledvet's picture

I will forever miss the NYSE being a "not for profit."  I actually think it worked better back then.  Plus it had an the "added dose of humor" aka "honesty" in my book.

Mon, 02/28/2011 - 13:48 | 1004239 buzzsaw99
buzzsaw99's picture

Where kin i git me sum of them there interest rate swap derivatives thingies?

Mon, 02/28/2011 - 13:48 | 1004241 TideFighter
TideFighter's picture

Margins on Sealy PosturePedics growing too. Wonder if it is related?


Mon, 02/28/2011 - 13:50 | 1004247 rlouis
rlouis's picture

Maybe they can fund the deficit... <sarc>

Mon, 02/28/2011 - 13:58 | 1004278 Bob
Bob's picture

Them there is pure animal spirits, boy!  Don't kill the beast with gubmint intervenshun.  This will become a handy new hobby horse of the PPT, but only if National Interest is at stake. 

In the meantime, we have a new way to play! 

Mon, 02/28/2011 - 13:50 | 1004253 buzzsaw99
buzzsaw99's picture

1) borrow at adjustable rate.

2) buy protection

Q: does the dealer need to have an ace showing for me to be able to do this?

Mon, 02/28/2011 - 14:27 | 1004372 NotApplicable
NotApplicable's picture

So, the casino d.b.a. the CME has added a new big-roller, high-stakes room with attractive comps, all for the price of a Treasury? Well, color me shocked.

They probably built it where their PM vaults were.

Mon, 02/28/2011 - 14:42 | 1004420 Rich_Lather
Rich_Lather's picture

When the bond vigilantes come things will get even more interesting.

Mon, 02/28/2011 - 16:09 | 1004689 danimal
danimal's picture

Duh zh u get lower margin requirements when u spread or hedge like long treas and short futures or eurodollars vs short term treas futures. Do u really know that little about markets

Mon, 02/28/2011 - 16:11 | 1004700 danimal
danimal's picture

Duh zh u get lower margin requirements when u spread or hedge like long treas and short futures or eurodollars vs short term treas futures. Do u really know that little about markets

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