Looks like gold is as good as gold again -- that is,
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By Nandini Sukumar and Nicholas Larkin
Friday, August 17, 2012
CME Clearing Europe will accept physical gold as
collateral, extending the list of assets it is prepared to receive as
regulators globally push more derivatives trading through clearing houses.
CME Group Inc.'s European clearing house, based in
London, appointed Deutsche Bank AG, HSBC Holdings Plc,
and JPMorgan Chase & Co. as gold depositaries. There will be a 15 percent
charge on the market value of gold deposits and a limit of $200 million or 20
percent of the overall initial margin requirement per clearing member based
on whichever is lower, Andrew Lamb, chief executive officer of CME Clearing
Europe, said today.
"We started with a narrow range of government
securities and are now extending that," Lamb said in an interview today.
"We recognize there will be a massive demand for collateral as a result
of the clearing mandate. This is part of our attempt to maintain the
risk-management standard and to offer greater flexibility to clearing members
and end clients."
CME Clearing Europe, which started on May 6 last year, plans to offer
interest-rate swaps and more commodities later this year, he said. In the
U.S., the Dodd-Frank Act means more derivatives than ever will be processed
at a clearing house while the European Markets Infrastructure Regulation is
doing the same in the region. JPMorgan in February last year said it will
allow gold to be used as collateral for trading, following similar moves by
CME Group and Intercontinental Exchange Inc.
Investors and central banks are expanding gold
holdings on demand for a protection of wealth and alternative to currencies.
Gold held in bullion-backed exchange-traded products reached a record 2,417.3
metric tons on Aug. 10, data compiled by Bloomberg show. Central banks bought
254.2 tons in the first half of 2012 and may add close to 500 tons for the year
as a whole, the London-based World Gold Council said yesterday.
Gold for immediate delivery traded at $1,616.77 an
ounce by 1:40 p.m. in London. Prices are up 3.4 percent this year, extending
11 consecutive annual gains.
Derivatives clearing in Europe is dominated by LCH.Clearnet Ltd., owner of
the world’s largest interest-rate-swap clearinghouse, and
Intercontinental Exchange (ICE), which processes trades in European-based
credit-default swaps and energy commodities such as Brent oil futures.
A clearinghouse reduces the potential harm from a
member firm’s default by acting as the buyer to every seller and the
seller to every buyer. Most futures-exchange operators, including Deutsche Boerse AG (DB1), its Eurex
Clearing, CME and ICE own clearinghouse and don't permit similar contracts
traded on competing venues to be processed with theirs.