CME Clearing Europe to Accept Gold as Collateral on Demand

CME Clearing Europe will accept physical gold as collateral, extending the list of assets it’s prepared to receive as regulators globally push more derivatives trading through clearing houses.

CME Group Inc.’s European clearing house, based in London, appointed Deutsche Bank AG, HSBC Holdings Plc and JPMorgan Chase & Co. as gold depositaries. There will be a 15 percent charge on the market value of gold deposits and a limit of $200 million or 20 percent of the overall initial margin requirement per clearing member based on whichever is lower, Andrew Lamb, chief executive officer of CME Clearing Europe, said today.

“We started with a narrow range of government securities and are now extending that,” Lamb said in an interview today. “We recognize there will be a massive demand for collateral as a result of the clearing mandate. This is part of our attempt to maintain the risk management standard and to offer greater flexibility to clearing members and end clients.”

CME Clearing Europe, which started on May 6 last year, plans to offer interest-rate swaps and more commodities later this year, he said. In the U.S., the Dodd-Frank Act means more derivatives than ever will be processed at a clearing house while the European Markets Infrastructure Regulation is doing the same in the region. JPMorgan in February last year said it will allow gold to be used as collateral for trading, following similar moves by CME Group and Intercontinental Exchange Inc.

Gold Demand

Investors and central banks are expanding gold holdings on demand for a protection of wealth and alternative to currencies. Gold held in bullion-backed exchange-traded products reached a record 2,417.3 metric tons on Aug. 10, data compiled by Bloomberg show. Central banks bought 254.2 tons in the first half of 2012 and may add close to 500 tons for the year as a whole, the London-based World Gold Council said yesterday.

Gold for immediate delivery traded at $1,616.77 an ounce by 1:40 p.m. in London. Prices are up 3.4 percent this year, extending 11 consecutive annual gains.

Derivatives clearing in Europe is dominated by LCH.Clearnet Ltd., owner of the world’s largest interest-rate-swap clearinghouse, and Intercontinental Exchange, which processes trades in European-based credit-default swaps and energy commodities such as Brent oil futures.

A clearinghouse reduces the potential harm from a member firm’s default by acting as the buyer to every seller and the seller to every buyer. Most futures-exchange operators, including Deutsche Boerse AG, its Eurex Clearing, CME and ICE own clearinghouse and don’t permit similar contracts traded on competing venues to be processed with theirs.

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