Exchanges cut margins to stop MF Global calls

TWO major US futures exchanges have cut the initial margin that speculators must hold against futures trades, to avoid market instability as traders scramble to cover positions transferred out of the bankrupt broker MF Global.

Exchange owner CME Group said it would set its initial margin upcharge at zero, lowering the risk of widespread margin calls after a US bankruptcy court ruled that as customer positions were moved out of MF Global, 40 per cent of their margin would remain at the clearing house.

If margin requirements were maintained, many customers would have been forced to post large deposits to cover the shortfall, sparking fears that a domino effect would roll through the markets as traders were forced into liquidating positions.

IntercontinentalExchange also said it was lowering its initial margin rate, matching it to the maintenance rate common across its contracts.

ICE said the action was being taken to “mute the impact of the transfer of accounts from MF Global Inc. to other clearing members”. CME Group said: “the intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members”.