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CME Is Said to Mull Rule Change as Basel Pressure Hampers Banks 

March 23, 2015

Matthew Leising & Silla Brush, Bloomberg Business

New rules meant to make banks safer are prompting the world’s largest derivatives exchange to consider changing how it backs trades in one of the biggest shifts since futures were created in 1865.

Under a CME Group Inc. proposal being discussed with the U.S. Commodity Futures Trading Commission, the cash and securities put up by bank customers to back their derivatives wouldn’t have to be counted as the bank’s own assets, according to a person familiar with the matter, who asked not to be named because the talks are private. As a result, banks wouldn’t have to carry capital to back those assets.

The change centers on CME Group’s role as a clearinghouse that requires cash or securities to back trades, ensuring losses at one firm don’t harm other users of the futures and swaps markets. Currently, banks collect these funds from their clients on behalf of CME. Basel III rules put in place after the 2008 financial crisis require banks to carry more capital to absorb potential losses on their assets, reducing profitability.

Read More: Bloomberg Business

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