And Here They Go For Round Two: CME Hikes Brent, Crude Margins By 25%, First Of Many Such Moves

Tyler Durden's picture

Some brilliant Chicago-based exchange apparatchik just ask himself this simple question: "If it worked so well with silver, why not do it with crude?" The answer is here: the CME, as we predicted last week, just hiked initial and maintenance margins on Crude and Brent by 25%, as well as FX, and other petrochemicals. And, oh yes, this is prudent risk management, because while the CME kept margins flat when WTI was at $115, the massive spike from $97 to $102 is unbearably destabilizing. At this point one can only stand back and watch as the CME proceeds with hike after hike, in an absolute vacuum from the administration, which certainly had nothing to do with this decision. And really who cares: free capital markets died on March 18, 2009.



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tmosley's picture

I'm amazed no-one seemed to have advanced notice of this. The market didn't move down, but strongly up all day today.

Rainman's picture

double down hand before the casino bus leaves.

camaro68ss's picture

I thought you could dig oil out of the ground for $5?

Dr. Porkchop's picture

No, that's silver. Oil comes out of the creamy caramel center of the earth.

camaro68ss's picture

o thats right. thanks for the correction

akak's picture

No, Porkchop, Hell is at the center of the earth --- all the oil lies in a thick layer between us and the eternally damned.  That is what keeps the fires stoked, all that oil dripping from Hell's ceiling.

Spaghetti Monster's picture

Well, actually; On Oslo Stock Exchange (which is all about the oil, in fact the whole friggin' country is) unusually large short positions were established in the previous week, with total short interest about twice the size of the rest of European exchanges. Also specific rumorus about some brokerage house trying to find a counterparty for an unusually large short on the OBX. Maybe somebody knew...

Source (Google Translate it!):

Turd Ferguson's picture

Anyone reading this thread without first reading this one:

does not understand the context of this hike in crude margins.

Zer0henge's picture

What happened to that silver margin hike that was suppoed to happen today?  Maybe tomorrow...

Quintus's picture

It happened.  Why do you ask?

speconomist's picture

Probably waiting to BTFD, but that couldn't be as this hike was announced last week.

randocalrissian's picture

Second margin was priced in with the first as both announced concurrently... it just gave more flexibility to liquidate positions, so any additional margin hike-related liquidation today was quite a bit less than Thursday.

tmosley's picture

It was already announced and priced in, dipshit.

Keep up, troll boy.

1100-TACTICAL-12's picture

seems to me as they keep raising margins , and the shit recovers in a few days like gold,silver & oil did today. It just shows how little faith there is in the dollar..

CPL's picture

That's because PM's don't behave like stocks.  Eventually they have to make good on their delivery of the physical PM.


Fucked if I've heard of anyone worrying about more paper being delivered if a company goes bust.

surfsup's picture

Those dang speculators... 

Cleanclog's picture

Airline ticket prices up - cost of hedging (margin expenses) another add on fee.

Turd Ferguson's picture

This is simply unmitigated bullshit. 

The goons hike margins to "cover" "volatility" that they themselves created.

An absolute sham, farce and joke.

Math Man's picture

So, what would you do if volatility had picked up and you owned the exchange?

You HAVE to raise margins...  it is the only way to protect yourself.

Unfortunately, every time vol moves, you have to do it again.

The thing is, if you are truely a long term holder, like all the ZH readers claim to be,  you should welcome this - it removes speculative froth from the market.

Math Man's picture

Exactly.  Problem is right now is the vol picked up, but the reaction is causing more vol...

It will pass eventually, but my guess is we'll be lower across the board for commoditites.  Too much speculative long money in there right now.  As it stands, you can still take on massive amounts of leverage in the commodities markets...  even w/ the new numbers, you can lever massively


Ratscam's picture

I'd prefer 100% margin, hence no margin.

End with the fractional reserve system.

True value of all goods to all the people.

Rynak's picture

CME: "Dammit, why are you always making me beat you? It's all your fault!"

Teamtc321's picture

Volume was low all day on slv Meth........

Math Man's picture

Sorry vol = volatility in trader speak.


Bicycle Repairman's picture

We all know why the margins were raised, you trifling a$$hole.

BigJim's picture


Forgive my ignorance, but I'm just beginning to see the ramifications of this.

When you expand the money supply broadly, you increase the (nominal) prices of everything. But when you make money cheaper (or more expensive) for specific things, it will be the prices of those specific things that will be bid up/down... and the difference will not be nominal at all, but real, relative to everything else. And the difference will be the result of credit-rate distortions, rather than the market's perception of relative value per se, ie, if all these items had to be bought with money that cost the same.

So by changing margin rates on different items bought on credit, the PTB can engender (and pop) bubbles of any specific commodity at will.

Can anyone point me in the direction of someone who's done more analysis of this?


BigJim's picture

A graph showing prices of various commodities vs margin rates vs time would be quite interesting.

Burnbright's picture

That would be interesting to see, however correct you may be it is really only correct about the paper market as that is where and how the bubble is formed. If they raise margin on paper markets and collapse the difference between dealing with the risk of holding a piece of paper that says you own something and holding the real thing then they will reach the threshold where a majority say it isn't worth holding paper over the real thing a divergence will occur between paper and physical. 

You can tell it has already begun to happen in silver premiums. I am going to guess that the threshold I am refering to happens at less than 50% of the cost of the real thing or slightly less than 2x leverage. 

BigJim's picture

I hear what you're saying... but even with silver, for a long time, physical price has followed paper, and will only stop once the paper price is clearly disconnected from reality - ie, we have a comex default, or are within nine yards of one.

Housing is a good example here, I think, of a physical market that's prices have been determined entirely by cheap money. When the cheap money ends, prices have to drop...

michigan independant's picture

Keynes’s aggregative analysis not formally wrong, but empty, redundant.

Keynes denied the existence of a liquidity trap. So they are fixated on wage.


For in 1986 Samuelson was still claiming that “we [Keynesians] always assumed that the Keynesian underemployment equilibrium floated on a substructure of administered prices and imperfect competition” [C-L, 1996, p.160]. When pushed by Colander and Landreth as to whether this requirement of rigidity was ever formalized in his work, Samuelson’s response was “There was no need to” Keynes explicitly demonstrated that even if perfectly flexible money wages and prices existed (“conceding a little to the other side”), there was no automatic mechanism that could restore the full employment level of effective demand . In other words, Keynes’s general theory could show that, as a matter of logic, less than full employment equilibrium could exist in a purely competitive economy with freely flexible wages and prices. Obviously Samuelson, who became the premier American Keynesian of his time, had either not read, or not comprehended, (1) Keynes’s response to Dunlop and Tarshis or even (2) chapter 19 The General Theory which was entitled “Changes in Money Wages”.

 The point is Mr. Market wants "poking" you to be bag holder only again and margin calls will do just that. When shit really the fan in the GD remember what classes "products" managed to survive? The point is top thinking can solve some sticky wages issues, and the manufacuring class wants to eliminate signal noise to supply chain reality's in there quest to mop up loose ends. These monsters 10 feet tall wish the 5 foot  no harm but total annilation. Remember this first and foremost, Governments tolerate innovation since Statist have what purpose only than there survival and interests directed only. The days on getting it done are over and have been. You are allowed to survive only. Many are finding that market cap "property rights" is deemed nationalized assets are filtering back it appears. IMO Vanilla money may never come back since inflated base mop that up to welfare equilibruim.




akak's picture

MI, the trick lies in putting your words together in a logical order which conveys a coherent thought, or thoughts.  Your posts, instead, consistently read like a crowded Scrabble board.

In other words, when your neurosurgeon reconnects your hemispheres via your corpus collosum, get back to us, and not a minute before.

BigJim's picture

I appreciate your taking the time to answer my question, and I'm pretty sure you're saying something very interesting here... but I can't for the life of me work out what it is. Sorry :-(

Would you mind editing it into a format that other (and, admittedly, possibly lesser) human beings can understand, and re-posting?

schizo321437's picture

MI, is a 1 percenter I think. You forgot that the US isn`t the only country on the planet. Self interest is the problem. Solve that and you`ll get equilibrium maybe, social engineering hasn`t worked up till now though, so skeptics abound, which is why you get there in an oblique fashion.

AbandonShip's picture

And how/when do the margins go down? 

I think the lack of transparency of all this is what bothers everyone. Sure, the casino cannot die, but moving the goal posts w/o warning is irksome.   Nice to see HKMex launching gold futures shortly.  Maybe CME will reconsider their longs-assault with some global competition (unless they go ahead and buy HKMex to regain monopoly status).

pitz's picture

Margin hikes hurt shorts as well.  ie: producers will have to devote more of their capital to margin payments, and less to production. 

BigJim's picture

If most of the big shorts are TBTF banks (as in the case of PMs) then the margin changes are irrelevant to them, as they have unlimited 'free' money courtesy of the Fed.

pitz's picture

Are the 'big shorts' not firms such as miners, oil companies, etc., who want to hedge their production for financing purposes?  If they are forced to tie up their retained earnings in US treasuries, then many new mines and oil wells simply do not get drilled, and prices spiral up even further.  Hedged commodity producers could even go bankrupt if commodity prices exploded high enough as they might be unable to pull the stuff out of the ground fast enough to cover the increased margin requirements of the forward sales/shorts.

traderjoe's picture

So why did they expand the circuit breakers intra-day when crude was down $10?

Jason Bourne's picture

Math Man - It's not about fucking PROTECTING yourself, that is NOT what the fucking market is about, its about being a place where the Market decides the fucking market price, not PRICKS who own the exchange.


FUCK i can't stand it when people change the rules when it doesn't suit them!  The CME is an organization that needs to be removed from ownership of the exchange.  They are pricks too and you are obviously a shill for them so maybe get another user name so you can keep shilling without being identified as easily.


I am a Man I am Forty's picture

not sure why you are junked so much for this, i am heavily invested in energy companies and I don't care if they hike margins, it will build a new base and may give me a chance to buy at better prices, i'm not invested because i'm worried about people having to put more money up to purchase oil

Mr Lennon Hendrix's picture

Whats up Turdman....Do we have silver resistance at $50, or are we caught in a range below there?

Turd Ferguson's picture

Hi, Jimi! Here's an uneducated guess for you.

Up to 39 or so. Back down to 35. Then buy, buy, buy late next week.

Rynak's picture

Then afterwards, desperate firing squad? Or are they out of .... oh wait.... paper..... shit.

Hephasteus's picture

The trolls have outted what they need. They need silver under 26 to cover shorts. I don't know what they got going on with oil but I guess there's similar problems. My guess is they will do another massive spook job. From there they'll label everybody terrorists and start liquidating the US.

Rynak's picture

I'd rather go long flying pigs, than take advice from psyops.

If i were to use them to gain any information, i would instead analyze what they attempted to make us do.

What was that?





How did they communicate this message? In the following ways:

- Fear mongering about retaliation (you have no chance against us, give up and go away!)

- Indicating that the PM market is a ruined wasteland and uninteresting (better buy stocks!)

- This is the interesting one: Pulling random bottom prices out of their ass, which seemed unprobable to be reached, and then telling one that they WILL be reached and that one should wait (ergo:: not buy). The interesting part, is that those prices were all below 30$

If there is a shortage, and the psyops folks actually wanted us to believe what they said, and they are not incompetent, then blythe does not plan for prices to go below 30$ nearterm. Considering that they probably added some headroom, that would make the lower limit 33-35$...... which so far precisely is the new bottom.

Hephasteus's picture

Seems like a good analysis. Just going over frequencies of numbers they throw out. 9 was their lowball but they concentrated mostly on 40 35 30 25. I wonder what the date is for the short covering.

Rynak's picture

err, they really mentioned 40 and 35? I mean, 40 was already almost reached during the OBL attack (i think spot was 42 at that point)..... not disagreeing that some said this, i just cannot remember them. I remember 9, 15, 24 ... i think 28 was the highest that i saw, and if i recall correctly, the 28 target AND the 9 target, was both posted by bothsidesnowy (and both values in a matter of 5 minutes in the same thread.... hilarious multi-personality disorder))