London (Platts)--20Nov2012/1154 am EST/1654 GMT

Chicago Mercantile Exchange Group is waiving fees on five of its ferrous contracts for six months effective Wednesday, the company told Platts Tuesday.

The waiver applies to ClearPort and Pit Exchange trading and involves futures and options trading based on The Steel Index's 62% Fe CFR China price, futures and options based on the Platts 62% Fe CFR China price, and Chinese HRB400 rebar futures based off Mysteel.

Sources in the iron ore derivatives market said the exchange is trying to cash in on Dodd-Frank legislation, which will affect its competitor, the Singapore Exchange, the largest clearer of iron ore derivatives.

"This is an opportunistic way to lighten the financial burden for their clients while simultaneously expanding their own market share," one London-based derivatives broker said.

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Under the regulation The Commodity Futures Trading Commission said all clearing houses clearing swaps for US customers must be registered as designated clearing organizations (DCOs).

SGX is not registered, so US customers cannot open new positions on SGX AsiaClear, though they can maintain or close out positions opened before October 15, sources said.

"It is likely to be negative for the market share of clearing houses that aren't able to comply with the necessary regulations, such as SGX," the broker said.

SGX has applied to become registered as a DCO, traders and brokers said.

A source close to the exchange confirmed it had written to the CFTC about a proposed workaround and is awaiting a response, without elaborating further.

"Some firms with US ownership have moved clearing," he said.

"The market for iron ore, which is the key here, is in Asia and nothing is going to change about that so we are well positioned." If SGX does not receive DCO status, it could look to futurize its contracts, which would allow US entities to continue clearing through the bourse, one market observer said.

IMPLICATIONS UNCLEAR

Though the regulation is clearly an issue, its impact still seems unclear.

One London-based broker said a US customer had moved clearing away from SGX, though another said there has been no "real effect as yet as most of the traders are still clearing SGX."

"I think a lot of people are still waiting for guidance" from the CFTC, the broker said.

Another broker said: "You'd think they'd set some clear guidelines."

"A few of the banks and funds have started talking about how it might affect them, but no-one really has had to migrate across apart from a couple of funds."

Another broker said it is still unclear how the global business will be affected.

A London-based broker said there had been no impact on his firm's customer base, though he had received a CME offer for December earlier.

"No one bothered to show at all," he said. The offer was basis TSI.

--Colin Richardson, colin_richardson@platts.com
--Edited by Jonathan Fox, jonathan_fox@platts.com

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