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ICE Starts Accepting Gold As Initial Margin Collateral For All Energy And CDS Trades

Tyler Durden's picture




 

Repeat after us: gold is not a currency. But, just in case we are wrong, pretty soon one may see it accepted as pseudo legal, non-federal reserve note equivalent just about everywhere. First: the ICE, where "Gold bullion will be permitted for initial margin only and will be
accepted by the clearing house by electronic transfer in increments of 1
troy ounce, and will be priced daily using the London Gold Fixing Price
in US Dollars." In other words, the ICE will gladly take your gold. Period.

From the ICE Clear Europe

ICE Clear Europe Announces Acceptance of Gold Bullion Collateral; Adds Triparty Collateral Management Service to Enhance Security and Flexibility

London (8 November 2010) – IntercontinentalExchange (NYSE: ICE), a leading operator of global regulated futures exchanges, clearing houses and over-the-counter (OTC) markets, today announced that ICE Clear Europe will accept gold bullion as collateral for all energy and credit default swaps (CDS) transactions beginning 22 November.

Acceptable collateral for ICE Clear Europe currently includes cash and government securities. Gold bullion will be permitted for initial margin only and will be accepted by the clearing house by electronic transfer in increments of 1 troy ounce, and will be priced daily using the London Gold Fixing Price in US Dollars.

In addition, ICE Clear Europe recently introduced a triparty collateral management arrangement with Euroclear Bank, the international central securities depository, through which European government bonds may be used as collateral to fulfill initial margin requirements. Both the addition of gold bullion collateral and the availability of collateral via Euroclear Bank are intended to enhance the stability and flexibility of the clearing house, particularly during periods of intensive economic stress, while providing alternatives to customers.

“We are pleased to offer these enhancements as the first clearing house in Europe to permit gold bullion as collateral,” said Paul Swann, President of ICE Clear Europe. “By working closely with members, we are continually searching for ways to lead in enhancing risk management practices. Particularly in times of economic change or uncertainty, the addition of gold and Euroclear Bank’s triparty collateral management services bring additional flexibility and security to the markets we serve globally.”

Yves Poullet, Chief Executive Officer of Euroclear Bank, said: ”As the market continues to move from unsecured to secured transactions, accessing and efficiently managing collateral is becoming increasingly important. Helping clients optimize use of their collateral held with Euroclear Bank is precisely our objective, which is easily achieved when collateralizing margin calls from ICE Clear Europe. We are delighted to be of service.” 

h/t Abandon Ship

 

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Tue, 11/09/2010 - 10:45 | 711581 SheepDog-One
SheepDog-One's picture

SMART of 'em! And a harbinger of things to come I bet!

Tue, 11/09/2010 - 10:53 | 711584 Cognitive Dissonance
Cognitive Dissonance's picture

As so the quasi black market begins to take shape. I can't wait until I trade my old mercury dimes for a shopping cart of food.

We shall know it has arrived when the shop keeper keeps conversion tables taped to the cash register.

Tue, 11/09/2010 - 10:56 | 711612 sheeple
sheeple's picture

we're all barbaric relics!

Tue, 11/09/2010 - 11:18 | 711688 Double.Eagle.Gold
Double.Eagle.Gold's picture

All your barbaric relics is ours

Tue, 11/09/2010 - 10:47 | 711585 unum mountaineer
unum mountaineer's picture

advance in advance..Amen!

Tue, 11/09/2010 - 10:47 | 711587 AbandonShip
AbandonShip's picture

It's on!  Once the institutions start shifting towards PMs for biz transactions the rest is sure to follow.

Tue, 11/09/2010 - 11:09 | 711657 snowball777
snowball777's picture

More importantly than institutions, this looks like gold replacing the dollar as the petro exchange currency. We went to war over pricing oil in euro...this is a shot across the bow.

Tue, 11/09/2010 - 11:35 | 711760 AbandonShip
AbandonShip's picture

Time will tell.

I thought the language was interesting: "Both the addition of gold bullion collateral and the availability of collateral via Euroclear Bank are intended to enhance the stability and flexibility of the clearing house"

If we reverse this it seems to imply that the previous collateral (1. gov't secs and 2. cash - which is really just another gov't sec) cause instability.  Looks like the institutional and ZH community opinions are convergining (in our favor!).

Tue, 11/09/2010 - 11:45 | 711802 Sean7k
Sean7k's picture

I find it interesting the gold will be an "electronic" transfer, can you say leveraged paper gold to play commodity markets? Who has that? Government bonds? like Greece, Ireland and Portuguese Bonds? Bring us your garbage and we will give you control of commodities- the very items we all need to live.

Tue, 11/09/2010 - 10:48 | 711590 doomandbloom
doomandbloom's picture

gold is not a currency...

gold is not a currency...

gold is not a currency...

Tue, 11/09/2010 - 10:49 | 711592 snowball777
snowball777's picture

If it is under the explicit control of the LBMA...

Tue, 11/09/2010 - 10:52 | 711601 Anal Picnic
Anal Picnic's picture

gold is not a currency...

gold is money, period

Tue, 11/09/2010 - 11:11 | 711664 SheepDog-One
SheepDog-One's picture

Right, gold is not a currency, gold is real money. Unbuggerable by any central banksters!

Tue, 11/09/2010 - 12:15 | 711913 quasimodo
quasimodo's picture

Yeah right, then why do I have this priapism every day when I wake to green? It ain't no spinal cord injury either

Tue, 11/09/2010 - 10:49 | 711591 AngryVoter
AngryVoter's picture

The biggest unintended consequence of QE2 is going to be the ramp up in commodities caused by investors chasing returns.  Clearly demand for these goods in not increasing commensurate with price hikes.  The money printing is not reaching the consumer which means the normal monetary theory of printing money causing to many dollars chasing to few goods doesn't apply.  Instead the money printing is reaching the big oligarchs who will bid up everything in reach - consumer be damned.  Way to go Ben you're Brilliant!

Tue, 11/09/2010 - 10:51 | 711598 Slash
Slash's picture

but...but...YOU CAN'T EAT IT!!!! and it's in the throws of a bubble! $200 oz before year end!

Tue, 11/09/2010 - 11:13 | 711670 snowball777
Tue, 11/09/2010 - 12:13 | 711903 AbandonShip
AbandonShip's picture

I think a "</sarcasm>" would have avoided the 2 junks.  Hard to tell sometimes.

Tue, 11/09/2010 - 12:16 | 711909 AbandonShip
AbandonShip's picture

.

Tue, 11/09/2010 - 10:51 | 711600 MarketTruth
MarketTruth's picture

Hmmm... does someone desperately NEED physical gold ASAP??? Ok, which one of you insider guys is trading paper gold and coming up short in physical delivery?

Tue, 11/09/2010 - 10:54 | 711605 jesusonline
jesusonline's picture

That's a nice piece of news. Cheers for that

Tue, 11/09/2010 - 10:56 | 711613 sumo
sumo's picture

First Gold ATMs, now Gold as cash-equivalent collateral.

Is this how the dollar gets abandoned? One small but quick step at a time?

 

Tue, 11/09/2010 - 10:59 | 711620 unum mountaineer
unum mountaineer's picture

ya can't rock the boat so yeah..probably, maybe

Tue, 11/09/2010 - 11:00 | 711619 Pladizow
Pladizow's picture

ICE true intentions: They'll collect that gold then lease it out 100X!

Why would you pay in gold when you can pay in paper?

Greasham's Law: Bad money will drive out the good.

Tue, 11/09/2010 - 11:13 | 711677 Dr. No
Dr. No's picture

Why did you change your avatar?  I liked the old one.  It was the highlight comments section.

Tue, 11/09/2010 - 11:20 | 711691 Cognitive Dissonance
Cognitive Dissonance's picture

He must rotate is mammary gland selection or die from a lack of substantial substance.

http://en.wikipedia.org/wiki/Mammary_gland

Tue, 11/09/2010 - 11:29 | 711727 Pladizow
Pladizow's picture

Show me the most beautiful woman in the world and I'll show you a man that is sick of her.

Tue, 11/09/2010 - 11:37 | 711768 Dr. No
Dr. No's picture

So true.  Although I only had periodic glimpses of your previous avatar, you had to live with her.  Congrats on the new one.

Tue, 11/09/2010 - 11:04 | 711638 Turd Ferguson
Turd Ferguson's picture

"In other words, the ICE will gladly take your gold. Period."

Anyone dumb enough to give ICE their gold will soon be separated from it.

Don't plan on getting it back.


Tue, 11/09/2010 - 11:06 | 711646 Slash
Slash's picture

but the books say I own it! see, it's right there! "you own some gold".......do you mind being paid in paper for your gold though?

Tue, 11/09/2010 - 11:12 | 711671 Silva Plata
Silva Plata's picture

It's the end of the world as we know it, and I feel fine....
REM

Tue, 11/09/2010 - 11:20 | 711697 Iam Rich
Iam Rich's picture

Wow...just needed to say that.

Tue, 11/09/2010 - 11:30 | 711738 web bot
web bot's picture

The latest webot report predict that once gold goes above a $5 increase in 1 day, we are witnessing the beginning collapse of the USD.

This is going to get ugly.

I am not associated with the webbot people.

Tue, 11/09/2010 - 11:32 | 711744 cdskiller
cdskiller's picture

What's next? Gold being the only currency used by drug cartels? Oh, wait. That's probably already been the case for several years.

Credit default swaps are WMD's in the hands of terrorists and we are the schmucks standing in the crowded markets when they set them off. They should be illegal. There is no respectable argument that can be made, otherwise. There is nothing positive about the fact that the terrorists are using gold to buy those WMD's. I'll grant that it is further evidence that total surrender to currency collapse is approaching.

The OTC derivatives market is the playground for criminals. They used to perpetrate the greatest fraud and theft in the history of the world. They now run the world, with unfettered power to take down entire countries. Unrest will be met with violence. Buy gold, by all means

Tue, 11/09/2010 - 11:33 | 711755 Pining for the ...
Pining for the Fjords's picture

OK, WTF is going on right now in silver? Posters on this thread are understandably happy because we own physical, but you also get a sense that we are verydisconcerted by this price action... like the market is saying something but we cannot figure out what. 

Can anyone explain why we have this parabolic action in silver, and more particularly, why NOW?  This isn't just dollar-deval driven, it isn't just 'the public' starting to get into the game... the price action is too violent.  Is there something big players know that is lurking under the surface? An ugly tipping point that the connected see coming soon, and if so, what the hell is it? 

Never thought that making $ would make me nervous, but it is...

Tue, 11/09/2010 - 11:37 | 711769 AbandonShip
AbandonShip's picture

Buy some (portfolio) insurance

Tue, 11/09/2010 - 11:39 | 711776 web bot
web bot's picture

You are witnessing the early stage collapse of the USD. China, the Pres of the World Bank are calling for its removal.

Don't make the mistake and think it's business as usual. It's not. What you are seeing is precious metals in the early stages of becoming the defacto fiat currency... probably for the next 24 to 30 months... once the end begins.

If you think this is bad... once the default happens... what do you people are going to do with hard cash??? You got it.... hyperinflation in food stuffs....

It's going to get really ugly.

 

Tue, 11/09/2010 - 11:44 | 711800 web bot
web bot's picture

What is making this all the more disconcerting... along with the violent moves in pricing is that silver and gold have been surpressed and manipulated. So now, we are starting to see the major manipulators being squeezed and starting to cover their shorts.... which is driving the pricing. Also, people are starting to realize that something is up and are starting to request physical delivery....

With estimates of contracts/physical at 100:1... there won't be enough to fulfill.... then the cascade begins....

Web bot ALTA analysis is showing that the tipping point is November 14th... and we are in a full collapse of the USD.

I am not associated with these people... you can check out their site at http://www.halfpasthuman.com

They are a little weird... but their linguistical analysis is very telling of what is happening.

 

Tue, 11/09/2010 - 11:54 | 711835 Jendrzejczyk
Jendrzejczyk's picture

"Never thought that making $ would make me nervous, but it is.."

My feelings exactly. Are we just seeing the regular big money guys playing with silver for a while, only to be tossed away in a few weeks for another toy/commodity, or is that foul breeze really the shit hitting the fan?

Tue, 11/09/2010 - 11:58 | 711845 web bot
web bot's picture

This is not business as usual...

Tue, 11/09/2010 - 11:48 | 711797 sinner
sinner's picture

1. ICE evaluates all customers bullion holdings at the London gold fix to determine daily margin availability. Let's say for the sake of example, $1000/oz.

2. Black swan type event occurs 10 mins after the fix. 

3. Gold goes lock limit up, risk instruments go lock limit down. Margin calls ensue.

4. ICE redeems some of your gold at the spot price (let's say $1100) to cover the margin call and then gets to retain whatever ounces are left based on the difference between daily pre-crisis fix price and post-crisis spot price.

5. Rinse repeat for a jillion customers. In the event of a huge lock limit down Black Swan type move ICE takes your gold at what is probably the cheapest price on the day. Some sort of rape-our-customers structural hedge?

Tue, 11/09/2010 - 12:12 | 711897 luckylogger
luckylogger's picture

My thoughts exactly.

say you buy oil and use gold for margin and

gold sells off $100/oz and oil sells off 5 buks and it happens fast?

Did you just loose everything including your house and the canned goods stocked up in the basement?

Just a thought.

Tue, 11/09/2010 - 12:20 | 711929 AbandonShip
AbandonShip's picture

The casino can't play that game more than once, else all the players would leave.  I don't think they intend to bite (off!) the hand that feeds them. The OTC CDS players pay fees to ICE to clear these trades - why piss them off for a huge one time gain and earn a ruined reputation?   No, I think this is simply an invitation to replace some of the weaker paper bricks in the clearing houses' foundation with stronger (albeit, still paper/electronic)  bricks , exactly what ZH community has been preaching to all for a while now.

Tue, 11/09/2010 - 12:41 | 712003 sinner
sinner's picture

Not sure you understood the post. What you said there, is not what I meant. This is certainly not a foundation replacement. Margin is margin and margin call is margin call. A debt that requires settlement. The backing is irrelevant, gold or otherwise, the asset is liquidated to pay the margin. The difference being, by using a fix price on an asset which has spot price with a tendency to go up during times of financial uncertainty (even/especially on an intraday basis in this case) ICE has introduced a slippage through which they can accumulate bullion in small but extremely frequent intervals at no risk to themselves.

Tue, 11/09/2010 - 13:00 | 712083 AbandonShip
AbandonShip's picture

Agree, this mechanism now exists. But I don't think it will be exploited as it's probably not in ICE's long-term interests to gouge their customers (the TBTFs) or steal their gold. Just my opinion.

Tue, 11/09/2010 - 21:53 | 714618 RECISION
RECISION's picture

Tell it to Goldman-Sachs.

This is Gods work.

Tue, 11/09/2010 - 12:02 | 711854 Canucklehead
Canucklehead's picture

Welcome to the future. First ICE accepts gold.  Others follow their lead.  Then other commodities are added to the mix as the "gold" experiment works.  Soon, you can use US dollars or any commodity you want so long as it is housed at a secure third party location (complete with carrying costs).

How is this different than what we have today?  Well, what is the role of the other fiat currencies in the world?  Has gold et al replaced the dollar or has it replaced the other fiat currencies?

When the other currencies collapse, expect a run to US dollars.  By that time, commodities will be priced to the moon and the only way to take "profits" will be to convert those commodities into US dollars.

Tue, 11/09/2010 - 12:06 | 711876 web bot
web bot's picture

sure... unfunded US government liabilities of $23,000,000,000,000.00 and trillion dollar deficits for the next decade.... everyone is going to run to the USD.

You are either very nieve or are heavily invested in the USD.

I really wish you were right... the world as we knew it would continue. Unfortunately, I think you're in for a rude awakening.

Tue, 11/09/2010 - 13:05 | 712090 knukles
knukles's picture

Folks, with respect to the integrity of the ICE clearing corp and all associated counter-parties, this is not as good an idea as it first sounds.
Unintended consequences shall, as always prevail.  All's needed is for a momentous event to transpire during which the price of gold plummets, thereby eroding the value of the initial margin posted therein. 
Along side a significant failure of parties to meet variation margin calls, the value of the initial margin is then not enough to satisfy the contractual requirement.
And viola, boom, bang, crapola, shit meet fan, the integrity of the entire exchange has been irrevocably destroyed.

Say good night, Alice.

Bad idea.  Initial margin should always constitute a pool of assets which inherently display nominal price stability with respect to the settlement means of payment. 

Tue, 11/09/2010 - 14:58 | 712682 anonnn
anonnn's picture

Knukles the prophet--You mean like the $33 drop the last hour?

Wonder if this is setting margin calls right now on the early bullion players.

Tue, 11/09/2010 - 16:54 | 713338 knukles
knukles's picture

LOL.
Lucky rather than prophetic, I must say.  Pure coincidence.  Betcha next somebody'll be accusing me of being part of "The Conspiracy"

Margin calls could become problematic on a day such as this as you point out.  the reason is that many Commodity Jocks set up what is referred to as an "Inverted Pyramid", where as a first position becomes profitable, the variation cash flow received is used as initial margin to establish further exposures of the same direction.  Essentially, it's taking a leveraged instrument, a futures contract and re-levering it multiple times....the mathematical effect, pure and simple.

Thus, should market move adversely subsequent to the establishment of an inverted pyramid without accompanying cash set aside to meet large unanticipated adverse variation margin calls, then the margin clerks have a big evening a front of them, liquidating contracts.

So, when the margins are raised, large liquidation of positions oft follow, when lowered, positions increased.

LOL  Not prophecy, simply having been involved in commodity markets since the early 70's.  Same shit, different day, so to speak.

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