CME Makes Maintenance Margin Equal To Initial For Everything

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#1 Fri, Nov 4, 2011 - 10:41pm
Wizard
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CME Makes Maintenance Margin Equal To Initial For Everything

Edited by: Wizard on Nov 8, 2014 - 5:03am
Fri, Nov 4, 2011 - 11:59pm
Warren Peace
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Be agile, Be liquid, Be ready

I don't see how this doesn't cause a massive cascading negative feedback loop of liquidation....... in everything.

Get ready folks, get your cash together... the dollar is about to have a boost, and everything else is going on blue light special.....

This may be a time to acquire all kinds of stuff...... very cheaply.

Sat, Nov 5, 2011 - 12:23am
bern
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This is very disturbing

This is very disturbing news. How can the CME justify doing this in this fashion? The financial markets are a complete traveshamockery. 

Sat, Nov 5, 2011 - 2:08am
dabblingman
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So advice to us small-fries is?????

What's the thing to do here? Not that I have millions to invest, but what's a small-fry to do faced with this news????

Sat, Nov 5, 2011 - 2:25am
Dr G
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The thing to do is be short

The thing to do is be short already, or get out ASAP. Then buy commodities.

Sat, Nov 5, 2011 - 7:27am
DavidSilverSwe
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as discussed in the weekly

as discussed in the weekly metals wrap, it doesnt necessarily be a move downward, the only

thing we know for certain is an extreme volatility as positions are forced to be closed, either longs or shorts.

Sat, Nov 5, 2011 - 7:33am
Revelho
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Ladies & Gents The CME Group,

Ladies & Gents

The CME Group, which runs the COMEX commodities exchange in Chicago, announced after hours yesterday that it will be raising its maintenance margins so that they match initial margins - for every single class of futures which they trade:

Notice 11-399: Subject-Performance Bonds/Margins : Initial / Maintenance Ratio Changes - effective Friday, November 4, 2011
https://www.cmegroup.com/tools-information/lookups/advisories/clearing/C...
https://www.cmegroup.com/tools-information/lookups/advisories/clearing/f...

This dry prose is interpreted for you here:

CME Goes To Collateral DefCon 1: Makes Maintenance Margin Equal To Initial For... Everything!?
https://www.zerohedge.com/news/cme-goes-margin-defcon-1-makes-maintenanc...

(The margin changes which apply to gold and silver futures trading appear on page 18 of the tedious hardcopy printout attached to this article.)

------------------------------------------------------------------------------------------------------------

Doesn't that sound dull? It's anything but!! If you want to understand what happens when the COMEX raises margins, see my very recent blog article. Given the timing of this latest news, its title was rather appropriate:

Fireworks!
https://dystopiary.blogspot.com/2011/09/fireworks-gold-price-silver-pric...

These margin hikes apply only to speculative futures trades, where only a portion of the full price has been staked, NOT to spot trades for physical commodities, where the whole 100% price has already been settled in full. However, the futures price of gold and silver has a massive influence over the spot price for physical bullion, which is why I am writing to you this weekend.

The margin changes which apply to gold and silver FUTURES will be as follows:

Gold: from $8,500 to $11,475, a 35% hike
Silver: from $18,500 to $24,975, also a 35% hike

Asking a gambler to stump up another 35% of their marginal stake, just to stay in the game, would be too much for most people. Futures prices will fall sharply once the COMEX formally issues these "margin calls", as people are forced to sell, quickly, to minimise their inevitable losses, or their dealers exercise their right to close down unfunded trading positions and come gunning for the cash shortfalls.

To Summarise
I have just sold ALL my gold and silver, and am now holding cash balances with my bullion dealers. I expect the world spot prices for gold and silver to start falling when trading opens on Sunday night, and fall even more steeply when the formal margin call letters are sent out on Monday 7th. As this will also happen in all other futures markets, I have no idea how serious the whole "liquidity" situation for world commodity trading will be, nor how desperate will the big brokerage houses be after the demise of one of their largest operators, MF Global, which declared bankruptcy last week after stealing over $700M of their customers own money and losing it in a desperate game of "double or quits" with (you guessed it) marginal futures trades which went the wrong way.

Once the prices stabilise at new lows, I will be buying back in again.

Have fun!

Revelho

Sat, Nov 5, 2011 - 9:06am
jacey
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CME increases margin call; markets will be under pressure

"CME's margin hike will force market players to cough up billions of dollars in a single day. Since this cannot be easily procured in one business day, we may see margin calls and forced liquidations of margin accounts across America and the world."

https://www.moneylife.in/article/cme-increases-margin-call-markets-will-be-under-pressure/21187.html

Sat, Nov 5, 2011 - 9:27am
lilbromarky1
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ridiculous.  I'm taking

ridiculous. I'm taking profits/minimizing losses on my recent purchases. Not taking this one on the chin I've been fucked over 3 times already in 2011.

Like my ideas? Check our blog at: https://backtobasicseconomics.blogspot.com/
Sat, Nov 5, 2011 - 9:35am
CYM
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I'm the former Operations

I'm the former Operations Manager of a small manufacturing company that went through Chapter 11 from March 2010 to July 2011. I did 80% of the work for the bankruptcy. I even authored the reorganization plan. I have a keen understanding of how banks behave during a Chapter 11. Their gameplan essentially has two steps: 1) secure collateral AT ALL COSTS. 2) See step 1.

So this morning I went back and re-read Bruce Krasting's missive from last week, "On MF": https://www.zerohedge.com/contributed/mf

"My guess is that the missing customer cash was grabbed by one (or more) of the big players in the global bond market. MF did not sign off on the cash grab. The banks moved on them"

Having been through a Chapter 11, this move sounds like S.O.P. for the banks. They will do whatever they need to do to secure their collateral at the expense of any and all other creditors.

Bruce continues....

"Refco’s forex brokerage arm, Refco FX, LLC, was holding over 17,000 retail customer brokerage accounts at the time that Refco declared bankruptcy shortly thereafter. In the bankruptcy proceedings, Bank of America and other large creditors managed to convince the bankruptcy court that Refco’s customers were actually unsecured creditors because of Refco’s failure to segregate its customer accounts from their own general funds, despite telling customers that it had done so.

Most of the broker’s 17,000 customers eventually received little or no compensation."
So there is a precedent for declaring customers (who've had their funds comingled) unsecured creditors. I can tell you from experience that 'unsecured creditor" really means "He who gets fucked with no vasoline" The banks could give shit if what the did was legal or not. They will seize first and ask questions later. They have secured their collateral and will not let it go until a Judge somewhere says differently. They have a first secured interest, and everyone else including their Grandma must line up behind them. Now you've got a bankrupt MF whose customers are all asking, "Where's my MFing money?" (your money is in the hands of MFG's 1st secured creditor). You can't just tell them to go pound sand, because that would have huge repercussions on the market and investor confidence and likely trigger many lawsuits. You can't just pay them because the money isn't there to do so. You need to find another way to "settle up" with these customers, but how? You destroy the value of their portfolios to the point where you owe them pennies on the dollar.
Sat, Nov 5, 2011 - 10:53am
atlee
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Liquidation event

Liquidity crisis = liquidation event for longs. PERIOD

Market action will take all short positions immediately above margin requirements. They will NOT liquidate. 

There will not be many buyers stepping in front of this train.

The dollar will soar. So will Treasuries. Means Euro probably dives regardless of the news out of Euro disneyland.

It will NOT be a risk on environment. It will not put any pressure on existing short positions. They will be flush.

The physical market price WILL follow the paper market price.

This will crater the markets through year end so do not be in a hurry to buy. The memory of this beating will linger on all the way up to QE3. 

This event will clear the remaining underwater banker positions and we will be set for QE 3 and the real push to much higher prices next year. 

Sat, Nov 5, 2011 - 11:04am (Reply to #7)
Warren Peace
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The Physical Core

As we have discussed in the past, one never knows when the phys will separate from the paper.

In such an environment, we would not want to be caught in the deplorable situation of having zero physical as that market goes no offer.

Think refco, and MF...... having your wealth tied up in a MFing pretzel while the fiat universe crumbles. The bullion banks/ traders are in no way safe. They are just as vulnerable to rule changes and new executive orders as everyone else. In fact they are a prime target of the manipulators. Think a new anti financial terrorist rule that freezes all customer accounts at bullion bank/dealers until they can do a full investigation (and involuntary body cavity search..... literal or allegorical) on every customer. The FBI will have a field day searching through all our condemning entries on TF and ZH.

So, my advice is to keep the phys stack safe, and private. Since there is very likely going to be a great price on bullion in the near future, raise up some cash (the dollar will likely be strong in a falling commodity eviron), when the phys gets to a price that screams buy, then lock in an order, go to the bank and deposit/wire it out that day. Any money in any institution should be treated like a nuclear potato. A local dealer who has stock for immediate delivery is best, but gainesville.com, and apmex.com have decent prices and delivery times.

See the preparedness forum for all the basics of good planning.

@Atlee..... Agreed, this should be a major liquidity raising (asset selling) event. Patience is needed for the best prices. Do you see at some point the phys/paper separating near the low point? We wouldn't want to get too greedy and have to chase physical in a "no ask" scenario.

Sat, Nov 5, 2011 - 11:14am
Bay of Pigs
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@atlee

That sounds like a rational argument to me, and good advice.

Let's see how this plays out and how long physical supplies last in that environment. I have a feeling people will be buying all the way down. Stackers aren't dumb and shortages are the last thing they want to face. 2008 showed that in spades. Their was none to be found. Even old man Tulving was out.

Anything in the $20's is a gift from heaven, and will be bought heavily, IMO.

Good luck everyone. 

Sat, Nov 5, 2011 - 11:53am
lilbromarky1
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Yep, there is going to be

Yep, there is going to be some dow-tanking news early next week and the CME is going to piggy back this huge margin hike onto the back of a dow plummet. Limbo time. How low can you go Ag?

Like my ideas? Check our blog at: https://backtobasicseconomics.blogspot.com/
Sat, Nov 5, 2011 - 11:54am (Reply to #11)
lilbromarky1
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atlee wrote: Liquidity crisis

atlee wrote:

Liquidity crisis = liquidation event for longs. PERIOD

Market action will take all short positions immediately above margin requirements. They will NOT liquidate. 

There will not be many buyers stepping in front of this train.

The dollar will soar. So will Treasuries. Means Euro probably dives regardless of the news out of Euro disneyland.

It will NOT be a risk on environment. It will not put any pressure on existing short positions. They will be flush.

The physical market price WILL follow the paper market price.

This will crater the markets through year end so do not be in a hurry to buy. The memory of this beating will linger on all the way up to QE3. 

This event will clear the remaining underwater banker positions and we will be set for QE 3 and the real push to much higher prices next year. 

Perfect.

Like my ideas? Check our blog at: https://backtobasicseconomics.blogspot.com/
Sat, Nov 5, 2011 - 11:54am
Stormdancer
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atlee

Another supportive aspect is the fact that access to capital for margin requirements in not symmetrical. The big shorts are connected (probably to the FED if necessary) while smaller commercials and retail...both likely net long...not so much.

JPM can probably raise as much margin as they need while little people get frozen out. 

A mountain tree, if it would see, the far horizon and the stars May never know a sheltered place, nor grow symmetrical in grace Such trees must battle doggedly, the blasts and bear the scars. - by Marion Loyal Thompson
Sat, Nov 5, 2011 - 12:00pm
TPaine
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Kid Dynamite raises another possibility...

Margins might be lowered so that transitioning MF Global clients goes smoothly. That'd be giving the CME the benefit of the doubt, but it's possible...

https://kiddynamitesworld.com/the-cme-margin-notice-that-has-everyone-in...

Note the phrasing of the CME’s announcement: they used “initial/maintenance” ratio. Now, the initial margin is almost always larger than the maintenance margin (initial margin is how much collateral you have to post when you buy the contract. Maintenance margin is lower because otherwise you’d have to replenish your margin every time the contract falls in value – instead you only have to do it when you reach certain “maintenance” thresholds).

So the initial/maintenance ratios were previously greater than 1.0. They are being LOWERED to 1.0. There are two ways for this to happen, obviously: 1) Raise maintenance margin requirements or 2) lower initial margin requirements. If the CME was hiking maintenance margins across the board, it seems that they could have more accurately used the term: “maintenance/initial” ratio to describe the change.

(I'm not a nimble day-trader. Cash account, no margin and settlement periods makes swing trading more my style)
Sat, Nov 5, 2011 - 12:29pm (Reply to #12)
atlee
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I hate having to be the one

I hate having to be the one standing against popular opinion.

Seems to be often lately.

I was even called a troll for it last week by a very stupid and naive fellow in Pailins house.

Physical and paper can not separate. Think about it without the fantasy and tilting at windmills.

You say SLV and GLD are a sham? Well this is the action that fixes them.

Some say greed is stronger than fear. I think that theory is about to be tested.

Lets not debate the physical market reaction. Suffice it to say fear cuts both ways. 

no 100 oz bars? Plenty of 10 oz and rounds available which is what the general public and survivalists prefer anyway.

I think the true measure of scarcity is smaller denominations and rounds. It is also the highest profit margin next to eagles for the dealers.

You can and should own physical and it is a good idea. But buy it judiciously. Listening to the dealers serves only their purpose not yours. They are not your buddy. They will paint the tape with stories of availability. I have nothing to gain telling you this. In fact I am almost exhausted spending time on this website. It seems if you are not a myopic bull, then why are you here? (believe me I don't know myself why still I bother).

You should buy your physical when it is down hard like maybe next week. Unfortunately, many physical buyers are sitting on stacks that they paid more than double for compared to prices we are likely to see. The guy at CMI is going to have a lot of hand holding to do with the million dollar buyers watching the value of recent purchases cut close to half. 

Once again, and for the umpteenth time, the speculator, hedge funds etc, have underestimated the house. You can not play this game if you do not understand control. It has been demonstrated over and over again but a little positive action and the demonstration is forgotten. I think the MF Global situation was part of the plan.

What I am most curious to see is did Sprott liquidate more of his personal holdings again ahead of this announcement. If so, I hope you are beginning to see how deep the rabbit hole really goes. (recall he did so just before the last 2 crashes and his disciples rushed to his defense saying it was coincidental)

Good Luck, I hope I am wrong but I am not.

Sat, Nov 5, 2011 - 12:38pm
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Thanks atlee

Appreciate your thoughts on all of that. Your value here is important.yes

Don't let the rock pelting get to you. The wisdom of your experience rings true.

Those "others" have none of that. Just rocks.

An epic lack of foresight, accuracy and rationale... https://www.tfmetalsreport.com/comment/170246#comment-170246

Sat, Nov 5, 2011 - 12:46pm
TPaine
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@CMEGROUP retweeted KD's

@CMEGROUP retweeted KD's take. Seems to confirm margins are being lowered, not raised. 

(I'm not a nimble day-trader. Cash account, no margin and settlement periods makes swing trading more my style)
Sat, Nov 5, 2011 - 12:48pm
DavidSilverSwe
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People say they want out

People say they want out before they take a massive loss, truth is that it will open lower/or at the level it will trade toward

there will be no time to get out, for me Im focusing on damage control and lowering GAVs, if it goes down big.

this is in actuality a good thing as it will lower the leveraging situation and thus lower volatility and manipulation, imo. I might have missed some factors though.

they might even kill my longs on silver, and this is a sham obviously to do this after hours and have no trading for non insiders

leading up to this. If they'd say we'll have the increases and yadayadaydaya, IN 2 WEEKS, everyone will have time to get cash,

fix positions etc. This seems like blatant in your face manipulation/insider business, which should be grounds for someone getting jail time. Maybe Im an extremist in this sense. it's my 5 cents. or im bitter facing a possible big loss come monday due to this.

edit: there is always a silver lining, and if it does drop sharply in comm. markets across the board, then obviously the upcoming rally will be even stronger(when somehow confidence comes back to these markets)

Sincerely/Dave.

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