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The Other Side Of The Story: CME On "Understanding Margin Hikes" And Why "They Are Not A Means To Move A Market"

Tyler Durden's picture


It is not surprising that following a relentless barrage of margin calls, many have speculated, jokingly or not, that the CME has recently set out on a path of outright warfare with commodities investors and speculators, which was further escalated after the exchange decided to hike WTI margins on a day when priced broadly declined and not in a violent manner either. As the article author herself notes, much to the incredulity of some of her readers: "margins are set as part of the neutral risk management services we
provide. They aren’t a means to move a market one way or another, or to
encourage or discourage participation from one kind of market
participant or another."
The response was in question to when the CME will reduce margins now that the price of silver has tumbled by 30%. We would actually love to get an answer to that as well...

Understanding Margin Changes, from Kim Taylor of the CME

With recent geopolitical events and natural disasters driving
volatility in financial markets, margins – good-faith deposits to
guarantee performance on open positions – have spent more time than
usual under the limelight.

So we thought it might help to provide a very brief primer on margins as part of this conversation.

At CME Group, we’re intently focused on risk management. In over a
century, we have not experienced a default. In more than a century,
there has never been a failure by a clearing member to meet a
performance bond call or its delivery obligations; nor has there been a
failure of a clearing member firm resulting in a loss of customer funds.
As part of our overall risk management program, margins are adjusted
frequently across all of our products based on market volatility. When
daily price moves become more volatile, we typically raise margins to
account for the increased risk. Likewise, when daily price moves become
less volatile, margins typically go down because the risk of the
position also decreases.

Margins are set as part of the neutral risk management services we
provide. They aren’t a means to move a market one way or another, or to
encourage or discourage participation from one kind of market
participant or another. Rather, margin is one of many risk management
tools that help us assess overall portfolio risk to protect market
participants and the market as a whole.

There are two main margin philosophies that clearing houses can have.
First, a clearing house could set margins sufficiently high to cover
all possible volatility environments. Changes are less frequent, but
margins are higher. Second, and the CME Clearing approach, is to ensure
that margins are set to cover 99 percent of the potential price moves.
Margins then are lower in less volatile periods and higher in more
volatile periods. Changes are often made when the volatility environment
experiences a sustained change.

Who determines margin, and what goes into setting margin levels?

At CME Group, CME Clearing is responsible for setting margins. In
doing so, we consider several factors to compute the gains and losses a
portfolio would incur under different market conditions. Then we
calculate the worst possible loss a portfolio might reasonably incur in a
set time (usually one trading day for futures markets).

CME Clearing determines “initial margin,” which is the margin that
market participants must pay when they initiate their position with
their clearing firm, as well as “maintenance margin,” the level at which
market participants must maintain their margin over time. We mark
positions to market twice a day to prevent losses from accumulating over
time. We typically change margins after a market closes because we have
a full view of the market liquidity of that trading day. And, we also
provide at least 24 hours notice of margin changes to give market
participants time to assess the impact on their position and make
arrangements for funding.

In the case of silver, we have made several changes in margin in
recent weeks to adjust to volatility in the marketplace. By the close of
business Thursday, May 5, the margin when a position is initiated will
be $18,900; throughout the life of that trade, we would expect $14,000
in maintenance margin would be kept at the clearing house. By the close
of business Monday, May 9, the margin when a position is initiated will
be $21,600, and we would expect open positions to keep $16,000 in
maintenance margin at the clearing house. This is similar to when you
sign up for a checking account – a bank will typically require a minimum
initial deposit and can then stipulate that you maintain a certain
balance going forward.

It also is important to mention that the way margins are calculated
has to be tailored to the market served. For example, portfolio margins
for our listed derivatives are based on the CME Standard Portfolio Analysis of Risk (SPAN).
CME SPAN is the industry standard for portfolio margins used by more
than 50 other global exchanges, clearing organizations, service bureaus
and regulatory agencies. Margins for credit default swaps and interest rate swaps are quite different because those markets behave differently and have different kinds of variables that produce risk.

As an industry-leading clearing provider, our risk management
methodologies have to work to protect the markets we serve. Our interest
is in providing security for the entire market – no matter which way it

We encourage you to bookmark our performance bonds page on our website, or subscribe to our margin change announcements, so you can stay posted on the changes we routinely make to margins.


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Thu, 05/12/2011 - 17:01 | 1269520 Mongo
Mongo's picture

Bull crap!

Thu, 05/12/2011 - 17:11 | 1269547 nope-1004
nope-1004's picture

Kim Taylor, why are you selling your soul in the name of crooked banksters?  Who do you think you're fooling?

Say what you want, and in doing so you just discredit yourself more and more.

At CME Group, we’re intently focused on risk management.

That's the lie.  The truth is:

At CME Group, we’re intently focused on manipulating commodities that are influenced by Benocides' reckless money printing policies.

Thank me later Kimmy.


Thu, 05/12/2011 - 17:24 | 1269625 cossack55
cossack55's picture

      " .....and we are waiting for lucrative employment offers from JP Morgan and Goldman Sachs."

You forgot that part.

Thu, 05/12/2011 - 17:29 | 1269665 Pegasus Muse
Pegasus Muse's picture

Oh, you mean like this gal.     

FCC Commissioner who voted ‘yes’ to NBC buyout heads to Comcast

Thu, 05/12/2011 - 17:32 | 1269688 Thomas
Thomas's picture

In the very least, the five hikes attests to how far behind the eight ball they got and how fast they had to catch up. Thus, it attests to what a bunch of meatballs they are (which are probably spiking in price also.) Thus, these guys should not be in charge.

Thu, 05/12/2011 - 17:44 | 1269729 smlbizman
smlbizman's picture

i have to agree with you, much like a landlord who has neglected to raise his rents for years and now is going to make up for lost time....

on the other hand is their any chance they see the writing on the wall and are not going to be the last ones leaving the party....for when it happens it will just happen aaannnd it will be gone...maybe they are getting nervous, they being cme, cmx. fed, et.als..

if you were a bookie, would you stretch yourself that thin?

than again i may not even be close in my thinking

p.s. i have a rooting interest in the silver in my hand

Fri, 05/13/2011 - 04:45 | 1271014 FrankDrakman
FrankDrakman's picture

Sorry, I see the CME acting in a perfectly rational way. When silver was $15/oz, and only moving a few cents day, your margin risk was small, and so margin requirements were small. As the price skyrocketed, and we saw moves of over $1/day, the risk was much higher. In just a couple of days, your margin could be completely wiped, and you'd be forced to sell at a price that might give you a big loss - and since commodities trade on much lower margin than equities, I see this as a perfectly sensible move on the CME's part to ensure that all trades are settled without default.

Now, other posters on the thread have posited that these changes were leaked to JPM and others, so that they could front-run the expected sell-off caused by increased margin. I don't know any of the people involved from JPM, CME, CFTC, or others, but given what we've seen from the banksters, this collusion would not surprise me in the slightest.

Thu, 05/12/2011 - 19:57 | 1270108 EscapeKey
EscapeKey's picture

I look f/w to my landlord hiking rents five times in a week.

They knew the target from day one, yet milked it for all its worth, and leaked it to inner circle market participants.

Yeah right this was all about "volatility" and "risk".

Thu, 05/12/2011 - 21:14 | 1270344 rocker
rocker's picture

@ EscapeKey ...Great thought, never thought of it like that. Looks like JPM, GS and BAC figured out how to front run this trade. Shit, they will be richer and have another quarter of perfect trading on the prop desk. Can we say rigged markets.  Yup.

I will believe the CME has our best interest in mind when they do five margin calls on OIL. Only then. You see, they all know that OIL is used everyday and they will milk every dollar out of the poor until they can buy their houses and lives for nothing.  The U.S. Banksters are nothing less than crooks fed by the FED's free money to rape the now lower middle class.  You see, they think the middle class are those who make a mere 250K a year. Everybody else are their slaves. When oil dropped under 100 a barrel the other day, Barton Biggs said, "It's like a tax cut".  What a puke. What about those who are retired living on a fixed income.  We Are Japan Now.

Thu, 05/12/2011 - 23:29 | 1270698 Troll Magnet
Troll Magnet's picture

we wish we were for their nuke crisis.

Fri, 05/13/2011 - 04:14 | 1271000 toothpicker
toothpicker's picture

They are already employed by JPM G666

Thu, 05/12/2011 - 17:43 | 1269714 Keri at Bankste...
Keri at Bankster Report's picture

You know, it is just a little funny, isn't it?  "The lady doth protest too much, methinks." CME certainly seems to be making a lot of "explanations" for what it considers to be perfectly "normal" risk management decisions.

I just had "Street Smart" on Bloomberg going in the background, and I heard Matt Miller aske a guest about the margin hikes in silver, saying, "Doesn't it seem fishy? Who's the man behind the curtain doing that?" (That is a direct quote from Miller; it was at about the :45 minute mark of the show)  The guest said that it wasn't, and pointed out that historically margin increases have little effect on prices.  Miller then pointed out the recent increases and the (at least time-corresponding) 30% drop, and the guest said that he'd called the top at $49 and predicted a slide to $37 before he (the guest) was informed of the increases during the last days of April.

In a segment before that, Miller asked a different guest who was talking about GLD if the guest thought that the CME margin hikes in silver were intended to discourage people from investing in certain commodities. The guest said he couldn't speculate on that.

I mention this because apparently we are not the only ones who think x# margin hikes in x# days is a little, well, "fishy."  Miller is just another guy interested in markets who sees this, like most here, as abnormal.  And how many times now has the CME had to explain how "normal" it is?  Again, personally I am not against margin hikes over the long run, but like I said before, the CME knows that there are a lot of different ways to skin a cat, and they know the ways that gets everyone's attention.

Thu, 05/12/2011 - 17:58 | 1269743 akak
akak's picture
CME On "Understanding Margin Hikes" And Why "They Are Not A Means To Move A Market"


Thu, 05/12/2011 - 18:02 | 1269782 cowdiddly
cowdiddly's picture

But Kimmy said they are just risk management services that we provide. I guess when you go to a sell only market like the last time the market got ahead of your insiders short positions it will just be another wonderful service you wil provide for us.

Fri, 05/13/2011 - 05:55 | 1271035 old naughty
old naughty's picture

76 HA's?

Oh, I get it, one for each char CME spewed, inclusive of the spaces.

Thu, 05/12/2011 - 23:14 | 1270655 Goldman Hufs
Goldman Hufs's picture

On a positive note, at least we know she didn't her job based on looks...

Thu, 05/12/2011 - 23:35 | 1270703 Troll Magnet
Troll Magnet's picture

yikes!  why o why did you post that link?!?

a haircut and she could be a man!

Fri, 05/13/2011 - 08:54 | 1271224 GetZeeGold
GetZeeGold's picture



I totally forgive her for selling out......what other option did she have?


CME is looking out for you bitchez.





Thu, 05/12/2011 - 19:07 | 1269976 e_goldstein
e_goldstein's picture

Nah, it's more like "we're doing this for your own good, retail investors. Now bend over and take it, because we love you."

Thu, 05/12/2011 - 23:11 | 1270644 TraderTimm
TraderTimm's picture

I'd like to know why it takes nearly three years to catch the crooks in their midst. Perhaps their "intent focus on risk management" is leaving other areas overlooked?

Follow along at:

Hope you don't mind if I summarize, but the full text is in the pdf. "Disciplinary Actions" section. All offenses mentioned are in the NYMEX pits, energy unless noted otherwise.


Craig Cechini (CRAG) - Fined $140,000 and suspended for three months, barred from trading for an additional six months. The rap: Lack of proper records, pre-arranged trading, holding or withdrawing orders for the convenience of another, violation of prior orders to cease and desist.


Michael Cokeley (MICK) - Fined $7,500, customer restitution of $378 (hah), not allowed to reapply for membership for 3 months. The rap: This one is interesting, seems he didn't register someone as a clerk, and made trades for them in the clerk's account. Nice Try.


Peter Iocolano (PI) - Fined $175,000, remit his ill-gotten gains of $15,640, suspended for four months and banned from trading any account for two years. The rap: Pre-arranged trading from 2008 (what the... what? 3 years AGO?) traded opposite customer orders, recorded trades out of sequence, etc..


Richard Meister (RXM) - Fined $75,000, restitution of $10,815, Barred from holding a membership of any CME controlled exchange for one year. The rap: Front-running customer orders, permitted his clerks to initiate trades, failure to 'supervise' his clerks resulting in his gains, failure to produce records due to an investigation request.


William Squiers (SQR) - Fined $35,000, disgorge profits of $1,250, Six week suspension of membership and trading privileges. The rap: Pre-arranged trading in a ten-lot, round-turn SILVER futures trade (also from 2008, wow.. gave them time, eh?) also another pre-arranged trade on a nineteen-lot Silver trade, and *another* ten-lot pre-arranged trade.


Glad to know the best in "execution" and "risk-mangement" is waiting for your order. Don't sweat it, they'll catch them eventually. Any criminals doing trades in today's markets will be caught *for sure* by 2014, honest.



Fri, 05/13/2011 - 07:57 | 1271122 PenchantForHoarding
PenchantForHoarding's picture

Good call - thanks for sharing. I've been trading these day by day to leverage all the volatility... smart advice to keep overarching math in mind should a 1-2 day position become a 1-2 week+ one.

Thu, 05/12/2011 - 17:08 | 1269558 MiguelitoRaton
MiguelitoRaton's picture

They are not a means to move a market, but merely to manipulate a market.

Thu, 05/12/2011 - 17:18 | 1269601 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

LOL and B I N G O was his name-o.

Thu, 05/12/2011 - 17:19 | 1269610 Oracle of Kypseli
Oracle of Kypseli's picture

When they know that the market is going to be smacked down hard in advance, they prepare themselves for unintended consequences.

So, in a way, they actually discourage going long and secure themselves if the raid is too fast and small fry have no time to cover or post margin

Thu, 05/12/2011 - 17:27 | 1269648 Yen Cross
Yen Cross's picture

Small Fry should never exceed 10% of margin, and learn how to hedge!

Thu, 05/12/2011 - 18:02 | 1269784 Goldman Hufs
Goldman Hufs's picture

And how would they know a market is going down?  Additionally, if they are trained at mitigating volaitility why did it take them five shots in nine days to "get it right"?

Thu, 05/12/2011 - 20:46 | 1270263 Oracle of Kypseli
Oracle of Kypseli's picture

Oh! They sure do know. They are complicit.

The reason they do it in increments is to induce fear that raises can come at anytime.

Thu, 05/12/2011 - 23:44 | 1270727 Yen Cross
Yen Cross's picture

Naive. A sweet rebutal though.

Thu, 05/12/2011 - 23:53 | 1270745 Yen Cross
Yen Cross's picture

Gold is Bras(s these days. You know your trade. Thanks for the input. One question. (R) you long Timmmay?

Thu, 05/12/2011 - 19:33 | 1270047 slewie the pi-rat
slewie the pi-rat's picture

smack down, BiCHeZ!

this is from tomorrow, friday the 13th

thank me later...

More about basics than 'flash crash'

Thu, 05/12/2011 - 19:37 | 1270066 Yen Cross
Yen Cross's picture

GOOD on YA Slewie!

Thu, 05/12/2011 - 22:13 | 1270521 tickhound
tickhound's picture

"Meanwhile the US Federal Reserve is likely to start another round of asset purchases once the current one ends in mid-2011"

basics, bitchez

Thu, 05/12/2011 - 18:21 | 1269832 Al Gorerhythm
Al Gorerhythm's picture

You hit the nail! The bull crap covers the fear generated by rising prices. The market wasn't volatile, it was just rising inexorably towards the events that were about to meet their horizon.

Namely:- At CME Group, we’re intently focused on risk management. In over a century, we have not experienced a default. In more than a century, there has never been a failure by a clearing member to meet a performance bond call or its delivery obligations; nor has there been a failure of a clearing member firm resulting in a loss of customer funds.

Their focus on risk management was to eliminate the risk of default, the risk of failure to meet delivery obligations and the risk of failure of a performance bond call on the clearing members. It was the clearing members who were up to their balls in cold rising fear. It was the risk of JPM not covering at massive losses and the risk of board members who are perennially short, having their lunch money extracted from their accounts.

Like you said; Bull Shit.

Thu, 05/12/2011 - 19:12 | 1269981 NOTW777
NOTW777's picture

cme liar liar liar

Thu, 05/12/2011 - 19:16 | 1269990 NOTW777
NOTW777's picture

"we consider several factors" and calls from bernank, dimon and other chosen insiders

Thu, 05/12/2011 - 23:47 | 1270728 bigelkhorn
bigelkhorn's picture

That guy from FFT is very good and called the market crash back in 2008.

He reckons there is a good chance the market might bounce here. I just
watched his live video today, He is very good and I love his membership site.

its over at

Thu, 05/12/2011 - 17:02 | 1269528 PulauHantu29
PulauHantu29's picture

Just as Nixon's price controls failed miserably (oil shot up 300% after it ended), margin hikes and artifical suppression will fail to stop market forces.

I agree with Sprott, Schiff, NWML, UT Pension fund, Kyle Bass, and on and on that PMs + oil are THE place to be esp if these "geniunses" at the Fed and Wall Street lose control again and the dollar plunges 50-60% overnight.

Thu, 05/12/2011 - 17:06 | 1269530 Bastiat
Bastiat's picture

Accidental junk! Sorry.

Thu, 05/12/2011 - 17:19 | 1269593 SheepDog-One
SheepDog-One's picture

You can UNjunk as well you know.

Thu, 05/12/2011 - 17:23 | 1269636 tickhound
tickhound's picture

Speaking of junk...

If you made me... If I had to buy a currency... If you made me have to pick one...

I've decided to go long the US $ but only in Gartman terms.

Thu, 05/12/2011 - 19:01 | 1269946 Arius
Arius's picture

what is it? i love the guy ... /sarcasm/


Thu, 05/12/2011 - 17:37 | 1269702 Bastiat
Bastiat's picture

Done. Thanks.

Thu, 05/12/2011 - 17:06 | 1269532 detersbb
detersbb's picture

"The Other Side Of The Story: CME On "Understanding Margin Hikes" And Why "They Are Not A Means To Move A Market"

No Judge,


The bullet that I fired into the victims head at point blank range was not meant to kill or harm it, it was merely meant to scare him off.


Intent does not matter, effect does.


The road to hell is paved with golden...

Thu, 05/12/2011 - 17:23 | 1269618 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

...parachutes of wall street insiders?

Thu, 05/12/2011 - 17:35 | 1269699 in4mayshun
in4mayshun's picture

Zerohedge has the smartest readers in the world. I have never laughed so much and seen so many whitty comments on a website before.

Thats good though, all the ignorant people are to busy commenting on Youtube to mess with ZH.


Thu, 05/12/2011 - 18:56 | 1269931 Angelic Upstart
Angelic Upstart's picture


Best blog on t'web!

Thu, 05/12/2011 - 19:08 | 1269969 Manthong
Manthong's picture

showers of margin hikes.

Thu, 05/12/2011 - 19:35 | 1270057 Yen Cross
Yen Cross's picture

THANK YOU! Trade sideways. thats what it is. Hey anyone look @ baltic and xlf lately. The CNBS'ers caught ya off guard? The VIX is nothing until (CLUB FED) quits printing!

Thu, 05/12/2011 - 23:07 | 1270636 Goldman Hufs
Goldman Hufs's picture

Correction:  The FIVE bullets that I fired into the victims head...

Fri, 05/13/2011 - 05:47 | 1271029 Zero Govt
Zero Govt's picture

...yes and 5 bullets over 8 days too .....there's obviously a real sicko at the Chicago Mafia Exchange 

Thu, 05/12/2011 - 17:09 | 1269538 Gene Parmesan
Gene Parmesan's picture

So, CME, which parties outside of your organization have a say in determining whether or not there's going to be a hike, or how much of a hike is needed?

Thu, 05/12/2011 - 17:08 | 1269540 Derpin USA
Derpin USA's picture

Margarine bitchez!

Thu, 05/12/2011 - 17:09 | 1269548 Argentum
Argentum's picture

You will know them by their actions.

Thu, 05/12/2011 - 17:11 | 1269561 SilverIsKing
SilverIsKing's picture

They are good liars.

Thu, 05/12/2011 - 17:13 | 1269564 not skint yet
not skint yet's picture

(channeling Danny DeVito in Throw Momma From the Train)


"You lied to me!" (clank!)

Thu, 05/12/2011 - 17:14 | 1269567 GittyUP
GittyUP's picture

Just as I have been saying all along. Simple risk management. Im going to laugh when silver volatility starts to taper off but the price rises and CME lowers margin.  That'll shut up all you retards.  And yes I might even be a silver bull but one with a brain. 

Thu, 05/12/2011 - 17:17 | 1269582 SheepDog-One
SheepDog-One's picture

'Risk management', ah yes I see...but pumping stock futures 100% over the last months isnt risky? Why dont they hike margin req's on STOCKS which are right now margined at all time record highs if its just normal every day common sense risk mgmt? Bullfukinshit.

Thu, 05/12/2011 - 17:31 | 1269684 GittyUP
GittyUP's picture

its actually funny the extent of how you dont understand how things work.  How many investors who buy stocks on margin is of no concern to a clearing house.  A clearinghouse does not care how overbought/underbought a market is.  That is not there job. 

They only care about a possible default in their responsibility to function as a clearinghouse without having to cover investors huge daily losses due to margin calls. 

Would you care to explaint to me how investors buying stocks on 2-1 or 4-1 margin is dangerous to the clearinghouse??  Stocks would have to drop 25% in one day before margin calls would affect brokerages ability to due their job.  Get with it moron. 

Thu, 05/12/2011 - 17:40 | 1269707 SheepDog-One
SheepDog-One's picture

No I understand it fully- A bunch of Wall St banks were about to get kornholed by a collapsing USD and rising PM's so the 'referees' stepped in and hamfisted everything down to please their masters. Fucking double-posting asshole.

Thu, 05/12/2011 - 18:04 | 1269777 ZeroPower
ZeroPower's picture

SheepDog, youre allowed to be as much of a bull as you want w/r/t the PMs, and have that same passion for hatred of stocks, but it doesnt get any much clearer than what the poster explained above.

Silver moves 25% in a few days! Until you see that happen in the ES, there is absolutely no reason to raise margin there. 

And yes, please note the decreased margin requirements when silver vol is driven down. Again, i dont necessarily mean price, but volatility.

Thu, 05/12/2011 - 18:12 | 1269815 Rynak
Rynak's picture

Doesn't fucking matter. Even hypothetically assuming, that they do actually apply constant rules that leave no room to interpretation or arbitrary decision, everyone could see that the way the CME handled margins, amplified volatility and helped market manipulation. So, even if there was no human decision involved, the system is shit!

Thu, 05/12/2011 - 18:51 | 1269918 ZeroPower
ZeroPower's picture

and helped market manipulation

Alright, so taking 2 contracts at the CME for comparison purposes: when the ES moves up 20 notches its manipulation, but when silver goes from 40 to virtually 50 over a week, that isn't. And conversely, when silver DROPS a nice amount due to taking a breather from a sheer parabolic move higher, that is manipulation by the exchange, but merely capitulation on a down day when the same thing happens to the spoos.



Im not saying the increasing margin hikes didnt have anything to do with the drops in silver - clearly they accelerated them. But you cant possibly think silver was going to 100$ based on such pipedreams. For further proof, look at gold. Still at a cool 1500, and theres much less vol. If vol gets to the levels we've seen in silver, no matter if gold is trading higher or lower, the same margin hikes will be applied. 

Thu, 05/12/2011 - 19:04 | 1269955 Rynak
Rynak's picture

I don't even know why i bother to reply. Anyways, i'll not waste much time:

I never ever complained about silver going down. What i am complaining about, is the flash-crashes and the way margins work.... the interaction of both, which we saw recently, should not happen, neither up nor down. ESPECIALLY not in low-volume periods.

Thu, 05/12/2011 - 22:36 | 1270572 GittyUP
GittyUP's picture

While I agree it amplified volatility so what?  As a trader of PM's Ive made a killing both on the way up and way down.  I love the volatility!  I wish every day had 5-15% intraday moves!!!

Its funny how you have so quickly given up on your conspiracy theory lol.  Still dont see how it helped market manipluation though, Care to explain?

Fri, 05/13/2011 - 00:27 | 1270759 Rick64
Rick64's picture

Gittyup and Zero

 Ok this is right in theory, but the volatility was worse due to the margin hike on the 5th, whereas if they wouldn't have hiked it then it probably wouldn't have continued to fall or fall as fast, on top of that they announced two hikes at the same time (May 5th and 9th) which exacerbated the volatility, and this was after 3 previous hikes in a short period. This would be like having successive margin requirement reductions when its in a strong move up (from 05/02-05/05 it was in a downtrend). IMO

Thu, 05/12/2011 - 17:32 | 1269687 GittyUP
GittyUP's picture

its actually funny the extent of how you dont understand how things work.  How many investors who buy stocks on margin is of no concern to a clearing house.  A clearinghouse does not care how overbought/underbought a market is.  That is not there job. 

They only care about a possible default in their responsibility to function as a clearinghouse without having to cover investors huge daily losses due to margin calls. 

Would you care to explaint to me how investors buying stocks on 2-1 or 4-1 margin is dangerous to the clearinghouse??  Stocks would have to drop 25% in one day before margin calls would affect brokerages ability to due their job.  Get with it moron. 

Thu, 05/12/2011 - 19:57 | 1270117 EscapeKey
EscapeKey's picture

Do these same corporations sit on huge liabilities in terms of the assets they short? No?

Oh right, it's different when it's equities.

Thu, 05/12/2011 - 22:32 | 1270563 GittyUP
GittyUP's picture

what you say doesnt even make sense... Care to explain?  What corporations?  CME?

Thu, 05/12/2011 - 19:56 | 1270115 EscapeKey
EscapeKey's picture

The brain of a rodent, but no doubt a brain.

Thu, 05/12/2011 - 17:20 | 1269568 SheepDog-One
SheepDog-One's picture

Good, if huge margin rate hikes are not a means to move a market in your direction, then lets see a matching margin hike on stock market futures, which BTW are right now at all time margined highs!

Thu, 05/12/2011 - 20:02 | 1270122 EscapeKey
EscapeKey's picture

No, that's different, because the "wealth effect" dictates so.

Thu, 05/12/2011 - 22:59 | 1270625 optionsoptions
optionsoptions's picture

How do you know that stock market futures, I'm assuming you're talking about the ES are at all time margined highs? link? Thanks in advance

Thu, 05/12/2011 - 17:14 | 1269570 I am a Man I am...
I am a Man I am Forty's picture

if you don't have the money to buy the shit, good riddance

Thu, 05/12/2011 - 17:12 | 1269571 unwashedmass
unwashedmass's picture


oh please. can we just say what everyone knows...JPM is going under on the silver situation...ya did it to save 'em...i mean, what are friends for?

or if you're not friends, what are payoffs for?

Thu, 05/12/2011 - 17:22 | 1269612 falak pema
falak pema's picture

jPM can keep kicking the can as long as there is QE...once that stops...ouch!

Thu, 05/12/2011 - 17:27 | 1269640 cossack55
cossack55's picture

They will still be able to crawl up to the discount window like the snakes they are.

Thu, 05/12/2011 - 20:02 | 1270130 EscapeKey
EscapeKey's picture

QE3 will be sold as a means of "saving the economy".

Because althought QE1 didn't turn things around, QE2 neither, but QE3 will be TOTALLY DIFFERENT!

Thu, 05/12/2011 - 17:16 | 1269578 IdioTsincracY
IdioTsincracY's picture

As someone said:


if you don't have the money to buy the shit, good riddance

Thu, 05/12/2011 - 17:16 | 1269592 SRV - ES339
SRV - ES339's picture

Tyler... could you possibly provide an email address for Ms Taylor. I'm sure many others would like to join me in thanking her for clearing up this little mis-understanding!

Thu, 05/12/2011 - 17:20 | 1269594 MiguelitoRaton
MiguelitoRaton's picture

OK, prove it. Define a formula, per commodity, stating when and by how much margins will move. Then it is transparent and honest. Include factors that make sense like volatility, JPM's nervousness, actual sales of physical, price action above an acceptible price, you know something we can all understand that is predictable.

Thu, 05/12/2011 - 17:23 | 1269616 SheepDog-One
SheepDog-One's picture

Yes apparently they were quite concerned with a 'too high price' on silver, and that some of it was margined. So out of upstanding concerns about safety for silver buyers and such, they had to put in 6 margin increases within a few days. Nevermind stock market prices at all time highs with record high margins. Those are apparently 'safe' and 'quite reasonable'.

Thu, 05/12/2011 - 23:52 | 1270256 Hacked Economy
Hacked Economy's picture

So help me here as I wrap my mind around the concept of 'too high a price on silver'...

If (and I know you've all heard these facts before, but bear with me) our Founding Fathers set the silver/gold at 15:1, and historically it's been at about that same ratio (16:1 or so), then as silver rose recently and we went from 100:1, to 60:1, to 40:1, etc., ending up at about 32:1 before the recent margin hikes and the slide back down to $35...wasn't that an approach toward what we always saw historically as a "sane and sound" ratio/ balance?

So how in the world could the Federific powers-that-be ever claim that silver pricing was going too high?  Oh, I know all the arguments about exposing the devaluation of our currency and all that, but that same argument is already clear just by looking at the rise in gold's price.  Our FRNs are going down the flusher anyway.

Interested in seeing what the responses to my question are.


Someone actually junked me?  Oh yeah, almost forgot that there are trolls still lurking around...

Thu, 05/12/2011 - 17:53 | 1269747 Rynak
Rynak's picture

That is the crux of the matter. The whole margin handling by CME is shit as long as there is no transparency AHEAD OF TIME.

Thu, 05/12/2011 - 17:21 | 1269598 Math Man
Math Man's picture

Volatility bitchez.

Like today.  An 8% up and down move in 24 hours.

Enough to wipe out almost the whole margin....

If you are the exchange, you have no choice but ton increase them.

Don't be surprised if we get another one tonight.

Today's volatility was HUGE.


Thu, 05/12/2011 - 17:24 | 1269629 falak pema
falak pema's picture

there is only one game in town...keep running...and hope the lightning falls on the other guy!...When QE'll get worse...August..august...will be moment of truth.

Thu, 05/12/2011 - 17:27 | 1269647 Math Man
Math Man's picture

And watch the whole commodity complex.  It is about to melt the fuck down over the next few months.  Blame QE2 ending - but I'll tell you why:

Redemptions bitchez.

In addition to all the leverage being pulled from the system by margin increases, a LOT of hedge funds are going to get redemption requests.  What would you do if a 'hedge' fund you were invested in lost 20% on a 5% move in commodities?  You'd pull your money and ask questions later... because their risk management is fucked and they weren't 'hedged' - they were just levered long.

There is going to be a ****LOT**** of money coming out of the commoditites complex over the next few months.

Thu, 05/12/2011 - 19:55 | 1270103 akak
akak's picture

... only $5 to dig it from the ground ....

... only $5 to dig it from the ground ....

... only $5 to dig it from the ground ....

... only $5 to dig it from the ground ....

... pieces of eight! .... pieces of eight! .....



Shouldn't you be perched on some pirate's shoulder somewhere (and no, NOT mine, despite the avatar!), instead of shitting all over this forum?


Thu, 05/12/2011 - 20:09 | 1270139 EscapeKey
EscapeKey's picture träumte von einer Gesellschaft, in der alle gleich waren und in der die produzierten Güter gerecht unter allen aufgeteilt würden.

Thu, 05/12/2011 - 20:17 | 1270165 akak
akak's picture

Lo siento, pero no puedo ni leer ni entender el aleman.

Puedes repetirlo en castellano?  O, si sea necesario, en ingles?

Thu, 05/12/2011 - 20:16 | 1270173 EscapeKey
EscapeKey's picture

Nej, du bliver sgu n0dt til at finde en oversaettelse paa nettet.

Thu, 05/12/2011 - 21:24 | 1270383 akak
akak's picture

Teraz co to jest?

Oj guwno!

Thu, 05/12/2011 - 21:24 | 1270368 XPolemic
XPolemic's picture

Like today.  An 8% up and down move in 24 hours.

Which is a vol of 8%. Margins are already 12%.

Today's volatility was HUGE.

I didn't realise there was a 1D future contract ... oh wait ... THERE ISN'T! So it would seem that the 1M vol is unchanged then.

If you are the exchange, you have no choice but ton increase them.

If you are the clearing house you mean (actually the exchange and the clearing house are both owned by CME group, which is pretty disgusting).

Don't be surprised if we get another one tonight.

I would be very surprised if we got another margin hike tonight, but that is because, unlike you, I can actually DO arithmetic. On the other hand, another margin hike when 1M vol remains unchanged would be absolute confirmation that margin hikes are being done strategically to attack longs.

Thu, 05/12/2011 - 17:22 | 1269615 mayhem_korner
mayhem_korner's picture

O.J. didn't do it...

   Bill never inhaled...

       It was a wardrobe malfunction...

           Bonds is clean...

               CME doesn't hike margins to move markets...

Thu, 05/12/2011 - 17:40 | 1269711 The Profit Prophet
The Profit Prophet's picture

You forgot a few:

Lee Harvey Oswald acted alone...

   Subprime is contained...

      There is no inflation...

         Geithner isn't gay...

Thu, 05/12/2011 - 19:46 | 1270089 slewie the pi-rat
slewie the pi-rat's picture

looks like our mayhem_beagle in the sopwith camel inhaled...   yay!

Thu, 05/12/2011 - 17:20 | 1269620 bobby02
bobby02's picture

Wow! Has this guy been reading my posts today or what? Now that prices have cooled off, as soon as vol declines margin requirements should also go down.

The exchange absolutely did the right thing to protect its counterparties, i.e., its customers. The only suspicious thing is the hurky-jerky, non-transparent, inconsistent way in which it did this. I see no reason why a formula where margin is a function of price and vol cannot be used.

I guess we'll have to wait for vol to decline and see what they do.

Thu, 05/12/2011 - 17:22 | 1269633 SheepDog-One
SheepDog-One's picture

LOL good one +1 !

Thu, 05/12/2011 - 17:37 | 1269704 bobby02
bobby02's picture

Seriously. For example:

Margin = notional value x 7%  x (implied vol/3M trailing vol)

Calculated at the close of every trading day. Post by tomorrow's open or we close your position.

Minimize counterparty risk. Transparent.

Thu, 05/12/2011 - 17:44 | 1269721 SheepDog-One
SheepDog-One's picture

OK, so lets see them apply it to equity markets which are at all-time margin highs. Oh wait, that wouldnt be good for the central banksters so scratch that.

Thu, 05/12/2011 - 18:30 | 1269767 bobby02
bobby02's picture

I could say a lot of nasty things about the Fed, but governance of margin in cash equities is totally transparent. The main fault I find with it is that it does not reflect how rising vol increases the potential maximum loss.

Thu, 05/12/2011 - 23:06 | 1270642 optionsoptions
optionsoptions's picture

Aren't equity markets already at 50% margin for basically everyone? not counting SPAN for large diversified portfolios.

Fri, 05/13/2011 - 02:49 | 1270954 bobby02
bobby02's picture

Yes, last I checked that was the initial margin.

My point is that everyone knows what it is, and it doesn't change on a daily basis. Compare that to CME which moves margins constantly, with no fixed percentage or mechanism to explain/anticipate where the numbers come from.

Thu, 05/12/2011 - 20:13 | 1270164 Keri at Bankste...
Keri at Bankster Report's picture

The Shanghai just today increased silver margins for third recent 19%.

Here's a historical list to 2008 from Rueters:


Thu, 05/12/2011 - 21:44 | 1270442 XPolemic
XPolemic's picture

Margin = notional value x 7%  x (implied vol/3M trailing vol)

Is that really the Margin calculation? That would mean that if implied vol decreases in the future, the margin requirements will become tiny, because the 3M trailing vol is so large now.

For example, 3M trailing vol is roughly (49-28)/28 = 75%!

Or do you mean the 3M average of the 1M vol? Lets see Feb (34-28)/28 = 33%, Mar (38-34)/28 = 37% , (49-38)/38 = 48% Average = 39%

Current implied vol is ~50%

So using your formula above 7 * 50/75 = 4.66%

that can't be right so: 7 * 50/39 = 8.97% 

Still not right ....

Can you verify that is CME Clearing's margin calc, or did you just make that up?

Lets say that the silver bugs become suitably chatised and stop buying the stuff, and the implied vol settles down to 25%. According to your formula above, that would mean that the margin would go to (7 * 25/39) 4.48%, or roughly $7000 at a spot of $34, is that correct?

Fri, 05/13/2011 - 02:47 | 1270953 bobby02
bobby02's picture

"For example" is the operative term in that post. I was just suggesting a transparent way to calculate margin. I do not suggest that CME uses any such calculation, but rather that perhaps they should.

The proposed equation is just a first stab. You are certainly right to point out that falling vol would decrease margins. Perhaps a lower bound for that term (or the margin itself) would be appropriate. My only point is that the calculation should be transparent and methodicly imposed, not random and arbitry as it seems to be right now.

Fri, 05/13/2011 - 03:48 | 1270990 XPolemic
XPolemic's picture

"For example" is the operative term in that post. I was just suggesting a transparent way to calculate margin.

Ah, I see. 

My only point is that the calculation should be transparent and methodicly imposed, not random and arbitry as it seems to be right now.

I agree, but TBH, I couldn't really give a shit about leveraged positions. If wheat or corn was going up 30% per month, you can be sure the clearing house would raise margins on those as well.

What is bizarre in the silver market is that even though the 1M delta is about ~30% (for 3 months in a row), the implied vol is ~50%. Usually, in a free market, the open short/long interest in a market converges (particularly when there is a strong trend), but in the silver market, the open interest is diverging!!!!

Thu, 05/12/2011 - 17:23 | 1269621 pcrs
pcrs's picture

But our inventories on silver are drained as parties change their allocation registered/elligable

The fun thing is that you can raise margins and as a cause of that the volatility goes up as it generates a sell off. Then you can say you predicted the higher volatility and hiked margins in anticipation, because you have great visionaries. What is cause and what is effect?

Thu, 05/12/2011 - 17:23 | 1269622 Missiondweller
Missiondweller's picture

"In over a century, we have not experienced a default."


She seems to protest a bit too much.

Thu, 05/12/2011 - 17:51 | 1269750 Hephasteus
Hephasteus's picture

Of course they have not defaulted. They simply refused to honor a default.

London gold pool.

I never default I just tell you to fuck off.

Thu, 05/12/2011 - 17:24 | 1269626 Muir
Muir's picture

I think and thought back then that what they did was very prudent.

If you physically hold precious metals as a hedge (I have gold Philharmonics in safety deposit box) what does it matter.

Take the oposite case, they reduce margins to 1:100, prudent?

What they did was a very correct case of CYOA.

Now as a trader (I don't do PMs) I accept full responsibility for any and all chicanery which I fully expect the exchanges to participate in.

And any trader worth his/her salt, does the same every day.

So, what's the beef?


Thu, 05/12/2011 - 17:27 | 1269643 SheepDog-One
SheepDog-One's picture

Since theyre so concerned with investor safety and such, Im sure next we'll see margin hikes on stocks which are all all time margin highs.

Thu, 05/12/2011 - 17:24 | 1269627 lieutenantjohnchard
lieutenantjohnchard's picture

very lame. cme must be on the receiving end of some love letters from john q.

the cme group probably thinks everybody is gonna go: ok. now i see. makes perfect sense. comical.

Thu, 05/12/2011 - 17:27 | 1269639 Catullus
Catullus's picture

Ok that explains increasing margins on new contracts.  Not on existing positions.

Thu, 05/12/2011 - 17:29 | 1269654 RED BARRON
RED BARRON's picture

Having been in the industry since 1972, I would have to say that young inexperienced traders are forcing the public at large to join funds that have experienced traders...that way they all feel safe and isulated from a wipe-out, such as IN-EXperienced traders have nev er been a part of before.  Money ALWAYS MOVES TO OLDER HANDS.

Thu, 05/12/2011 - 17:26 | 1269655 bothsidesnow
bothsidesnow's picture

You guys can't win even the Chinese who you all said do not have a rigged market raised margins. A couple of days ago you were dancing like little German Weimar girls in spring time because the Chinese were going to start a new market.

Hmm if every market is raising margins either they are all rigged or ZH Pimples are just a bunch of whining crying babies.

Oh wait why do you care if they raise margins it's a paper contract and you know who cares about the paper.

Get a new story Tyler this one is very old. How about getting on the story of the end of free money. Oh wait you can't sing that song. 


Thu, 05/12/2011 - 17:39 | 1269674 SheepDog-One
SheepDog-One's picture

GEE ya think markets might be rigged? Only been saying that for 2 years here. 'EVERY market raising margins'? How did stock markets get overlooked, which are ridiculously overvalued and pumped on record high margin levels? Dont be a hypocrite.

Thu, 05/12/2011 - 19:08 | 1269977 tmosley
tmosley's picture

Hey moron, ask yourself a question.  How much time was there between each of the Chinese margin hikes?  (Hint: about a week)  Now, how much time was between each CME margin hike?  (Hint: 24 hours)

I wonder if you can see the difference?  Probably not.  Because you have an agenda.

Thu, 05/12/2011 - 17:29 | 1269657 Danno Anderson
Danno Anderson's picture

Kim, instead of deciding margin calls in secret meetings, why not provide a precise mathematical formula defining volatility and when margin calls will be applied.  You know, so everyone knows ahead of time.  

Thu, 05/12/2011 - 19:36 | 1270060 unununium
unununium's picture


Thu, 05/12/2011 - 17:31 | 1269658 RobotTrader
RobotTrader's picture

Actually Ben Bernanke must look at himself in the mirror each morning and pretend that he is a superhero.

After all, there has been no central banker in history who was able to "whip inflation" in one fell swoop by his margin raising shenanigans and not even touching interest rates.

He now has a self-reinforcing feedback loop that works perfectly:

- Raise margin to crush commodity speculators

- Specs flee stocks in general and run towards bonds, thus pushing rates even lower

- Stupid money buys retail stocks and pushes them to new highs

- Higher retail stock performance emboldens the consumer to spend even more money

- After commodities crash and bond yields are at record lows, "Animal Spirits" return and push stocks back up to new record highs.

Wash, Rinse, Repeat.

Thu, 05/12/2011 - 17:31 | 1269679 SheepDog-One
SheepDog-One's picture

Hey MomoFader can I get one of your "I 'heart' Ben Bernanke" t shirts?

Thu, 05/12/2011 - 19:11 | 1269980 tmosley
tmosley's picture

Comes with free nipple clamps, I'm told.

Thu, 05/12/2011 - 19:24 | 1270003 akak
akak's picture

And your very own 16" "Bernanke" brand dildo --- for those times when he has to appear on "60 Minutes", or before Ron Paul in committee, and just can't get it up afterward.

Rumor has it that they're made of CME silver, too.  But only plated --- the core is composed of solid LBMA-flavored tungsten.

Thu, 05/12/2011 - 22:58 | 1270623 wirtschaftswunder
wirtschaftswunder's picture

Is it supposed to be funny?

Fri, 05/13/2011 - 03:09 | 1270966 akak
akak's picture

Are you supposed to be intelligent?

Thu, 05/12/2011 - 18:32 | 1269879 latcho
latcho's picture

he missed the jobs that provide liquidity to consume: LOOP FAIL

Thu, 05/12/2011 - 17:28 | 1269660 Fiat2Zero
Fiat2Zero's picture

What moron is this fucking thing written to?

Thu, 05/12/2011 - 17:32 | 1269689 SheepDog-One
SheepDog-One's picture

They think everyone is a fukin moron.

Thu, 05/12/2011 - 17:28 | 1269661 AldoHux_IV
AldoHux_IV's picture

Kim'mah sounds just like the delusional idiots trying to convince people the shit aint shit, it's roses.

Thu, 05/12/2011 - 17:28 | 1269664 Missiondweller
Missiondweller's picture

Meanwhile, its gonna take a while longer to investigate those concentrated positions of the primary dealers. (They're lookin into it)

Thu, 05/12/2011 - 17:29 | 1269672 RobotTrader
RobotTrader's picture

I assure you that will never happen.

Blueblood firms are immune to any sort of investigation of that nature.

I mean really, use your head!!!

Thu, 05/12/2011 - 17:37 | 1269694 SheepDog-One
SheepDog-One's picture

Robo feigns disdain for 'the pigmen', but secretly dreams of being one himself.

Thu, 05/12/2011 - 17:44 | 1269728 Bastiat
Bastiat's picture

Yep, pigman jocksniffer.

Thu, 05/12/2011 - 17:31 | 1269667 buzzsaw99
buzzsaw99's picture

Sure it wasn't, and neither was this:


Thu, 05/12/2011 - 17:32 | 1269673 topcallingtroll
topcallingtroll's picture

If it is not a means for insider frontrunning and market manipulation then use a public formula that takes into account total product price and recent volatility.

This will protect brokers as well as allow everyone to anticipate margin changes.

This would also serve to decrease volatility.

Thu, 05/12/2011 - 17:30 | 1269677 jrh80
jrh80's picture

Perhaps CME should think about how many margin changes they made.  To change the margin 5, 6, 7 times (I've lost count at this point) is criminal in my opinion.  I would not be surprised when someone out there sues them (whether or not the case has legal merit).  I don't want silver margins to be lowered... since then it only gives them the opportunity to be raised again. 

Thu, 05/12/2011 - 17:52 | 1269745 JFK.4PREZ
JFK.4PREZ's picture

hello insider trading.  all their buddies got rich on the way down.   



Thu, 05/12/2011 - 17:37 | 1269695 max2205
max2205's picture

Reduce margins? Your kidding right?..... Maybe when silver is at $6.00 or lower this fall

Thu, 05/12/2011 - 17:39 | 1269701 Catullus
Catullus's picture

Also, the margins on CDS and Interest rate swaps have different dynamics because they can be imagineered into existence.  It's not like notional amount outstanding on them is above $1 quadrillion or anything. 

Fri, 05/13/2011 - 02:34 | 1270939 chindit13
chindit13's picture

If you can direct me to the CDS or Swap Exchange, I'll ask them.  I mean, that exchange must be a for profit business like the COMEX, right?

Thu, 05/12/2011 - 17:45 | 1269722 Papasmurf
Papasmurf's picture

So, which banks had advanced notice of the planned margin hikes and took short positions?  Is anyone going to investigate?  (stupid question)

Thu, 05/12/2011 - 17:43 | 1269724 Tracerfan
Tracerfan's picture

They have hundreds of billions in derivatives exposure and the silver market isn't even the size of a small pimple on an African bull elephant's butt, but they are going after silver.

CME are whores, and I won't be using them anymore for futures.  Goodbye fraudsters.

Thu, 05/12/2011 - 17:58 | 1269760 Yen Cross
Yen Cross's picture

Excellent call and Fantastic Analogy. Re: Zit on Dumbo comment!

Thu, 05/12/2011 - 19:14 | 1269989 SheepDog-One
SheepDog-One's picture

CME whorehouse.

Thu, 05/12/2011 - 17:43 | 1269726 RED BARRON
RED BARRON's picture

Go Robo...I love your are obviously an experienced trader... and that is most likely why I relate to opposed to most posters talking book, and out ass.


Thu, 05/12/2011 - 17:49 | 1269732 gunsmoke011
gunsmoke011's picture

And I am sure the relaxation of lock limit form $10 to $20 -- for the one day only - when oil was tanking was also done with honorable intentions.

Thu, 05/12/2011 - 17:49 | 1269746 Robslob
Robslob's picture

Yet no exchange is doing margin increases with stocks: Enough Said.

Thu, 05/12/2011 - 17:54 | 1269756 JFK.4PREZ
JFK.4PREZ's picture

Streetmoney21 got it right...


The long-speculators didn't have the money to stay in the market but the short-speculators (big banks) are getting 0% moola from the fed to cover.  

Thu, 05/12/2011 - 17:57 | 1269759 RED BARRON
RED BARRON's picture

It is CLEAR TO ME  that MARGIN HIKES  are meant to keep out the weak players.  I have been playing the game every day since 1972 and know more than every single one of you.  It is clear to me crude oil prices will drop to 82.00 before long(within 1 year)do the math........IF YOU HAVE AN EIGHTH GRADE EDUCATION

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