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CME Board Approves Net Margining For Clearing Firms

Date 07/05/1999

In the continuing implementation of its strategic planning initiatives announced last fall, the Chicago Mercantile Exchange (CME) Board of Directors has approved a measure to change margin requirements for the house accounts of clearing member firms from a gross margin to a net margin basis, beginning this month. Under the net margining program all "house origin" accounts of the clearing firm - including its proprietary positions and the accounts of its affiliates, employees and directors - will be netted against each other to offset counter-balancing long and short positions before margin requirements are determined. The change is expected to benefit all of the nearly 70 clearing member firms at the CME and will reduce margin deposits - or performance bonds - held by the CME Clearing House by nearly $900 million, or 20 percent of the total house positions. "Net margining will produce significant savings to our clearing members and further enhance the efficiency and cost-effectiveness of our markets," said CME Chairman Scott Gordon. "This program is in direct response to requests from our member firms to help them reduce costs and more efficiently utilize their capital. We've worked with them on this effort to enhance our clearing service as envisioned in our strategic plan, and we will continue to find ways to meet these needs." The move follows an announcement last week that the CME and the Board of Trade Clearing Corporation will begin cross-margining for interest rate contracts traded at the CME and Chicago Board of Trade on May 28. "Although the net margining program is unrelated to our cross margining initiative, both will serve to dramatically reduce performance bond requirements for our member firms," said Thomas A. Kloet, CME Treasurer and Chairman of the Clearing House Oversight Committee.