CBOT, CME and BOTCC Announce May 28 Start Date For Cross-Margining And Common Banking

The Board of Trade Clearing Corporation (BOTCC), the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME) have set May 28 as the start date for the recently completed cross-margining and common banking agreements. The cross-margining agreement will provide for reductions of potentially millions of dollars in margin or performance bond requirements for clearing member firms trading correlated interest rate futures and options at both exchanges. The program will comprehensively evaluate all interest rate positions in a particular portfolio, taking into account offsetting risk factors in determining overall performance bond requirements. For example, a portfolio containing spreads between CME Eurodollar futures contracts and CBOT 2-Year Note futures contracts could receive significant reductions in performance bond requirements. The proposal is pending approval by the Commodity Futures Trading Commission. CBOT Chairman David Brennan said, "Cross-margining plays a fundamental role in our effort to lower costs and increase the efficiency of our markets. This agreement was a team effort on behalf of the exchanges and BOTCC. It will strengthen our deep, liquid markets and provide our member firms with an effective and economical way to manage their derivative portfolios." CME Chairman Scott Gordon said, "The interest rate cross-margining program has the potential to save firms upwards of 75 percent of their current margin requirements depending on the make-up of their portfolio. The CME already makes active use of cross-margining in our equity quadrant that saves member firms billions of dollars a year in performance bond requirements. We are confident that there will also be very significant savings here." BOTCC Chairman Robert Felker said, "We are always looking for opportunities to bring more efficiencies and cost savings to our members, and we are convinced that both common banking and cross-margining will not only do that, but reduce many risk factors." Under the program, positions in eligible interest rate products at the CBOT and the CME will be held in special cross-margin accounts at the BOTCC and the CME. Joint and affiliated clearing members will have lower performance bond requirements for appropriate spread positions between the CME and CBOT products. The cross-margining agreement is scheduled to be implemented in two phases. The first phase, beginning May 28, will apply to firms' proprietary and house accounts. The second phase, which will open up the program to independent traders, market makers and market customers, will be announced as soon as issues including those pertaining to bookkeeping service providers are resolved. Over 90 percent of all CME member firms are also members of the CBOT. Of that figure, a large percentage are also currently trading interest rate products at both exchanges and will thus be eligible to take advantage of the program. In a separate agreement, a common banking pilot program will allow clearing firms conducting business at both exchanges to simplify and reduce the number of banking transactions for all transactions at the exchanges. In addition, common banking will allow firms to more efficiently allocate collateral between the CME and BOTCC utilizing the CME's CLEARING 21 banking and asset management system and avoiding costs associated with such collateral movements.