New Clearing Rules to Benefit CME - Analyst Blog
17 Ottobre 2012 - 7:07PM
Zacks
Yesterday, CME Group Inc. (CME) announced the
receipt of regulatory approval for reducing its portfolio margins
within the clearing and cross-selling of interest rate futures and
over-the-counter derivatives. This approval seeks to bring in cost
synergies for the company and new business for clearing services
offered by it.
November 19, 2012 onwards, CME Group will be able to allow
different types of trading firms and hedge fund managers to pool
their trades in diverse products in a single basket. These products
include interest rate swaps (IRS), Treasury futures and Eurodollar
futures, among others. In March this year, the company commenced
the offering of portfolio margining services to the banks such as
JPMorgan Chase & Co. (JPM).
Previously, these contracts were traded individually with less
collateral as some IRS would be offset with its futures’ position.
This process was also adding to the cost of the company. Thus, the
latest regulation will compel traders to back all the contracts by
the required collateral but with reduced initial margins, thereby
enhancing capital efficiencies for CME Group and traders.
The new rules also impel the traders to get their contracts
cleared by the authorized clearinghouses, which also includes CME’s
clearinghouse. Hence, this rule will allow the company to tap the
$400 trillion clearinghouse business.
Additionally, the portfolio margining will generate transparency
and manage risk effectively, which is expected to be beneficial to
the customers. The technological upgrade and a central clearing
will mitigate the risk and reduce margin requirements, thus
augmenting the scope for cost synergies.
Growth remains a huge driver for CME Group. While the company
has been expanding its IRS clearing portfolio, last week it also
received the due approval from the regulatory bodies in London to
launch its currency futures in Europe as well.
CME Group has already been operating its clearinghouse in London
since May last year. The company now intends to launch 30 new
currency futures by June 2013. CME Group also plans to initiate
more products in other asset classes in the future.
We believe these positives should drive growth in the company’s
IRS portfolio primarily due to the ongoing interest rate volatility
in the global economy. Additionally, such products enhance
transparency and risk-management features to the trading, which
should help in gaining the confidence and attracting the untapped
customer-base.
The latest offering will further enhance CME Group’s market
retention capacity in the presence of arch-rivals such as
NYSE Euronext Inc. (NYX) and
IntercontinentalExchange Inc. (ICE), also
reflecting sound utilization of its capital.
CME Group carries a Zacks Rank #4 that implies a short-term Sell
rating, while the long-term recommendation stands at Neutral.
CME GROUP INC (CME): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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