Anxious About Renewed Volatility, CME Steps into Treasury Futures Market

Perhaps taking a lesson from the financial meltdown of 2008, the CME Group Inc. CME has stepped into the Treasury futures market to stem potential volatility. The exchange has taken action to make it more expensive to trade in the futures market of U.S. government debt. Margin requirements were raised on Friday to reflect the new policy. In addition to offering a range of products, including those based on interest rates, equities, foreign exchange, commodities, energy and metals, the CME Group acts as a clearing house for a number of over-the-counter derivatives. By making it more expensive to trade in Treasury futures, the goal is to reduce highly speculative trading that could potentially "rock the boat." The timing of the announcement is likely no coincidence as Washington sits in gridlock with the August 2 deadline to raise the debt ceiling looming. According to a Reuters report, "The exchange said on Monday evening it will also raise the "haircuts" or discounts on the Treasury collateral it will accept at the close of business on Thursday. The last time it made such a change was in December 2007. This means traders and investors will have to post more Treasuries to back their CME futures and options holdings." Legislators in Washington are facing increasing pressure to get a deal done before next week. In the meantime, many market participants are taking active measures to reduce risk should a technical U.S. default occur. Though the timing of this announcement is noteworthy, it isn't unusual for the CME Group to adjust margin requirements on various financial instruments.