CME Group, the world’s largest leading derivatives marketplace, and the Depository Trust & Clearing Corporation (DTCC), agree to expand their cross-margining arrangement Monday, a move they said will benefit users by year end.
The proposed agreement enhancement would allow eligible end users at CME Group and the Government Securities Division (GSD) of DTCC Fixed Income Clearing Corporation (FICC) to access capital efficiencies that are available when trading U.S. Treasury securities and CME interest rate futures that have offsetting risk exposures. Clients will have to leverage the same registered Futures Commission Merchant (FCM) and broker/dealer at both CCPs, officials said. Officials said the agreement will encourage greater utilization of central clearing, which will reduce systemic risk.
“Bringing the benefits of cross-margining to the end-user is a critical step in enhancing capital efficiencies across U.S. Treasury market participants,” Laura Klimpel, managing director and head of DTCC’s Fixed Income and Financing Solutions, said. “Our ongoing collaboration with CME Group remains focused on extending cross-margin benefits to more customer accounts and eventually, to other products. Doing so will enable even greater efficiency, cost reduction, improved liquidity and increased risk management in the U.S. Treasury markets.”
Under the proposed arrangement, FICC will designate which accounts are cross-margin accounts, which will allow all of the eligible positions in the account to offset with eligible CME Group interest rate futures. CME Group will let participants direct futures to end-user-cross-margin account throughout the day, making them available for offset as part of the arrangement. The proposed arrangement still must meet regulatory approvals.
“Extending our cross-margining agreement to client accounts is an important milestone in our efforts to make U.S. Treasury markets more efficient for all market users,” Suzanne Sprague, CME Group COO and head of clearing and post-trade services, said. “Building on more than 20 years of partnership, we look forward to working with DTCC and regulators to deliver even greater benefits to both cash and futures market participants.”