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CME Raises Crude Oil Margins

NEW YORK (TheStreet) -- The CME Group (CME) is raising margin requirements on crude oil futures for the first time since March 4, effective the end of trading on Tuesday, May 10.

The initial margin -- the requirement for new positions -- on WTI light sweet crude futures will increase to $8,438 from $6,750 after the close on Tuesday. The maintenance margin -- the margin required for existing positions -- will increase to $6,250 from $5,000.

The margin increases are more significant than the last round of changes in early March. At that time, the initial margin for WTI futures contracts was increased from $6075 to $6750, while the maintenance margin was increased from $4500 to $5000.

Margins were also increased for Brent crude oil contracts.

The issue of margin requirements in the commodities markets became a major headline item last week after the CME repeatedly bumped up standards for silver futures, contributing to the selling pressure seen last week. Since the silver margin requirement increases - and the 15% selloff in crude last week - market pundits have been wondering if margin increases to crude oil futures could serve as a limit on what has been seen by some critics as runaway speculation in the oil futures market.

U.S. crude oil rebounded strongly on Monday, settling at $102.55 on Monday afternoon, up more than 5%.

A CME Group spokesman emphasized that margin increases are based solely on market volatility, and there have already been 58 days of margin changes in 2011. "This is a frequent occurrence. We can't anticipate volatility but adjust margins across all of our products frequently," said Chris Grams, CME spokesman.

After last week's press flocking to the issue of margins as commodity futures were routed, CME Clearing president Kim Taylor felt compelled to post a blog on the company's web site, explaining the margin issue.

CME Clearing president Taylor wrote in her blog post on margins, "Margins are set as part of the neutral risk management services we provide. They aren't a means to move a market one way or another, or to encourage or discourage participation from one kind of market participant or another. Rather, margin is one of many risk management tools that help us assess overall portfolio risk to protect market participants and the market as a whole."

--Written by Eric Rosenbaum from New York.



>To contact the writer of this article, click here: Eric Rosenbaum.

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