By Dow Jones Business News, March 13, 2013, 08:11:00 PM EDT
By Katy Burne
BOCA RATON, FL.--IntercontinentalExchange Inc. ( ICE ) and traders in the credit-default swap market are questioning
proposed new U.S. rules that would inflate the costs of clearing the trades.
A Securities and Exchange Commission proposal issued Friday could double the amount of margin on customers clearing
CDS contracts, according to people familiar with the situation.
CDS function like insurance for bonds and loans. A post-crisis regulatory overhaul mandated that many CDS be openly
traded for the first time and routed to central clearinghouses that guarantee the trades.
The SEC wants to limit traders' ability to offset their exposure between CDS positions with opposing risks, a process
known as portfolio margining, in trades tied to indexes and individual borrowers.
A copy of the proposal reviewed by the Wall Street Journal showed the agency wants to require clearing brokers to
collect margin from CDS customers that was "at least equal to 200%" of ICE's calculated portfolio margining amount, or "
at least equal to 150%" if the firm determined the customer "has virtually no credit risk."
"The viability of this margin regime is questionable," said Richie Prager, global head of trading at BlackRock Inc.
( BLK ), a big user of CDS.
The SEC proposal was sent to banks who act as clearing brokers for CDS late Friday. An SEC spokeswoman had no
Scott O'Malia, one of five commissioners at the Commodity Futures Trading Commission, said he was surprised at the
"Their own [SEC] order required them to cooperate with the CFTC, which I don't believe they've done," he said, adding
the goal is to "set an appropriate margin methodology that facilitates single-pot margining for CDS that works for both
clearing members and their customers."
Write to Katy Burne at email@example.com
(END) Dow Jones Newswires
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