CME Clearing Reduces IRS Guaranty Fund Contribution for Members (with Lofchie Comment)

CME Clearing will effectuate amendments to CME Rule 8G07 ("IRS Financial Safeguards and Guaranty Fund Deposit") that will reduce the minimum Interest Rate Swap ("IRS") contribution to the IRS Guaranty Fund for Clearing members. The IRS Guaranty Fund ensures robust financial safeguards for IRS products. In a recent review of the requirements for Clearing membership, CME Clearing determined that it will reduce the minimum Interest Rate Swap Clearing Member contribution to the IRS Guaranty Fund from $50,000,000 to $15,000,000. The change is intended to encourage more entities to apply for Clearing membership, which will help to diversify IRS Clearing membership, reduce the concentration of risk and provide additional liquidity to the default management process.

The proposed change will become effective on August 31, 2015.

Lofchie Comment: What is the trade-off between having a more diversified body of CME Clearing members and the possibility that those members will be weaker individually on average? Who determines whether that trade-off is worthwhile?