ICE Expanding Default Fund as Risk, Volatility Climb

ICE Futures U.S., home to markets for commodities including sugar, cotton and orange juice, said it will increase the size of a fund created to protect members against trading defaults after an increase in volatility and risk during the past year.

The so-called Guaranty Fund, which is supported by surcharges on trading, will increase to a minimum of $250 million from $215.89 million, the exchange said today in a statement. The fund is designed to cover the greatest potential loss at any one clearing member given the largest historical price move in any one commodity, it said.

The exchange uses margin deposits and position limits by the clearing house to reduce default risk, while the Guaranty Fund provides additional protection against “extreme market conditions,” Brookly McLaughlin, a spokesman for ICE, said in the statement. McLaughlin, contacted by e-mail, declined to elaborate on how the change will affect margin requirements or trading fees.

The contribution of each clearing member to the fund is based 80 percent on open interest, or the number of contracts outstanding, and 20 percent on volume, McLaughlin said in an e-mail.

Commodity exchanges have been bolstering measures to protect customers after the bankruptcy last year of MF Global Holdings Ltd. Chicago-based CME Group Inc., the world’s largest futures exchange, will require brokers to report daily customer fund levels as $1.6 billion in client money is still missing related to the MF Global collapse, the bourse said April 3.

(Corrects headline to remove extraneous word.)
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