Econintersect: Proposals coming from the CFTC (Commodity Futures Trading Commission) would downgrade the classification of U.S. Treasury securities as fully liquid. Risk Magazine reports that the CME Group is protesting a proposed regulation which might require the company to more than double current liquidity facilities. The CME Group operates multiple exchanges (CME, CBOT, NYMEX and COMEX) plus a global counterparty clearing provider, CME Clearing.
The Risk article by Lukas Becker and Duncan Wood reports The CME Group sent a comment letter to the CFTC saying that requiring additional highly reliable funding arrangements to back government securities the company held as liquid resources. In other words, the CFTC proposed regulation would classify U.S. Treasury bills, notes and bonds with lowered liquidity and risk status, making them not as good as cash.
According to Risk, the CME letter contains the following:
“CME may be forced to move a significant portion of its business offshore to maintain cost parity with its non-US competitors.”
Econintersect has been unsuccessful in obtaining a copy of the proposed CFTC regulation or the CME comment letter.
In a newsletter distributed by Janet Tavakoli, founder and president of Tavakoli Structured Finance, she stated:
“Then what is safe? If U.S. Treasuries aren’t safe, neither is USD/cash. Treasuries are the promise to pay cash, and cash is simply the shortest term treasury obligation that is meant to be backed by goods/services (and in the past, gold). Regulators haven’t thought this through.”
Econintersect thought of the day: What will happen when cash is not as good as cash?
Editor’s note: Econintersect was alerted to this story by the newsletter from Janet Travakoli.
Source:
- CME threatens to flee US as regulators challenge liquidity of US Treasury collateral (Lukas Becker and Duncan Wood, Risk Magazine, 05 November 2013)