CME Group to Offer Clients Margin Offsets on Rate Swaps, Futures

CME Group Inc., the world’s largest futures exchange, received regulatory approval to reduce the amount of margin required of its customers to back interest-rate futures and over-the-counter derivatives that offset each other.

Known as portfolio margining, the reductions will go into effect Nov. 19, the Chicago-based company said in a statement today. In March, CME Group began offering the service to the banks that are members of the exchange. CME Group customers, such as money managers and hedge funds, access the exchange through a bank member such as JPMorgan Chase & Co.

The cost savings come from combining positions in exchange-traded Eurodollar and Treasury futures with privately negotiated interest-rate swaps to allow long and short positions to cancel each other out. The lower risk of that entire position leads to less margin having to be pledged to back the trades.

“Goldman Sachs fully supports CME Group’s effort to develop the technological infrastructure to make portfolio margining a reality for our customers,” Michael Dawley, global co-head of futures and OTC clearing at the New York-based bank, said in the statement. “Portfolio margining of swaps and futures will allow our customers to capture material capital efficiencies through significant margin reductions.”

The benefit may reduce needed capital by as much as 85 percent for some portfolios, CME Group said in a statement in March.