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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"
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
moves.
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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You are a paid shill like your hero Robo....
The next time crude sees the low 80's, it will be because the entire system is collapsing.
T.E.I.N. everyone!
You are an arrogant prick as well.
Do the math? Ok. Let's do that. Oil fell $20 from its peak. Gas fell two cents. Oil falls another $20-->gas falls two more cents.
That is, unless oil rises again. In which case it tracks each percentage point.
Sort of like the relationship between paper silver and physical silver, only more extreme.
Too bad I don't have a big buried gas tank I can store gas in. Guess I'll have to stick with physical silver and gold.
Troll assclown.
Red Barron says, "I know more than every single one of you."
LMAO :-) You can't make up stuff this good !
Oh, and..... here's one more issue.......
Even IF CME would provide a clear formula for everyone knowing ahead of time what to expect, the problem is that anyone who has enough paper weight, can cause a feedbackloop, by flashcrashing the market, which then is followed by margin hikes, which then makes the market even more volatile, so that it can get crashed some more (correct me if i'm wrong here). So, its not just margins that are fishy - the issues are more widespread, and are easy to exploit, if one only has enough power.
No kidding. It's called fractional reserve banking. And when the main instigator is one of the favored few who can create unlimited fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-money out of thin air... pure, unadulterated predatory criminal activity is common practice.
So, will they learn from this and in their oh so well meaning mission regarding regulation and clearing.... fix those issues?
*crickets chirping*
Not? Oh well, i guess then we can just consider you complicit in the matter.
Me?
How?
Sorry about the change of phrasing in the middle of the post. You == CME
Yet another blatant lie. All that is needed to clearly demonstrate their statement is a lie are the facts of the silver market during May. They were clearly an intentional, self-conscious co-conspirator in the coordinated takedown.
Amazing how the predators-that-be imagine they can say anything, no matter how blatantly false and obviously dishonest, and delude themselves that we believe their lies. Just amazing.
Obviously they got a shitload of complaints for almost bringing down the entire financial system.
You goober
Their central bankster buddies were in deep shit, so they had to go full-retard and hit PM's with an iron fist....unlimited funds to mash it down, longs have limited funds once again the pigmen oink, then write this lame article explaining how its all just nothing to see here.
.... The JP Morgue has low friends in high places. Just another bailout of the TBTF, this time a bad trade in silver gets bailed out. Oh, they are a Crazy bunch of kids, what were they thinking short silver?
Slap on the wrist for the Banksters, slap in the face for free markets.
Dear Mr Gensler,
I urge you to investigate the silver flash crash.
Last Sunday week silver arguably the most important monetary metal crashed 30% in the space of days after being kicked off by $6 in the space of 12 minutes!!
To have the market operator contribute to the ongoing waterfall decline and even encourage it with the sudden and unexpected announcement of multiple margin increases reflects an intent criminal in nature at worst and negligent at best.
Market data over the last 12 months demonstrates that you may have encouraged JP Morgan and HSBC in private to decrease their outrageous short positions in the silver market. It seems now another game has opened up and the CME group have taken JP Morgan and HSBC's cause to heart in crashing the price of scarce silver for their valued banking clients. It is clear however that your visible inaction on position limits is forming a foundation for a growing pile of decay building in the silver market.
The CME's role in the silver flash crash completely nullifies the testimony of their submissions to the CFTC inquiry into position limits in 2010. They have demonstrated in their dereliction of duty, total disregard for the integrity of the COMEX market which they long claimed in defense against position limits. Their oversight of the crash brings into serious doubt the role of the CME group as independent market operators and strong regulatory action is required to curtail their ability to repeat these type of assaults on the market.
Kind Regards,
An important question to answer would have been: Does anyone responsible for determining margin rates have a conflict of interest at the time rates are adjusted?
Margin isn't used by retail. Throwing a paper price around my cause some funds to blow up but not retail.
If you buy a ring or a coin you dont use or care about margin. Thats the real world the real buyers and sellers the rest is just flippers and noise.
The choice is gold or silver if silver wins as the currency of the people nothing else matters.
Traders like to think that the world is filled with dummer versions of themselves.
The sucker at the table is not the one buying 2-5 grams of gold or a few silver coins. Its the trader trying to flip for a profit.
Actually, no - that argument has been repeated over and over, and it is so incredible shortsighted, that it implies intention:
Even if by trading physical, margin hikes do not directly apply to you, the price at which you buy (or sell) is anchored to spotprice, which in turn is affected by margin hikes.
Everyone is missing the up side of this whole affair.....Competing markets occurr when someone(country) can figure a better service is required and they can do it cheaper and with more integrity.......look for the metals market in China to offer a competing services. Another C(China)ME
Maybe she wasn't lying so much as taking liberties with the truth.
Oh, I think we were headed for a CME failure alright; failure of certain unnamed large financial institution to meet it's physical delivery obligations for silver. Good thing those string of margin hikes dumped some cold water on that problem.
TEPCO could learn a lot from the CME... ;-)
"This time it's different"...
Rasputin - Thu, May 12, 2011 - 06:14 PM
...or so exclaimed the SHS crowd when Rasputin, viperbear and RobotTrader tried to warn them that the spoon casino had been invaded by every two-bit speculator, gambler, freak, fruitcake, and his brother--all wildly driving up the price of the white shiny metal to astronomical heights.
Furthermore, Rasputin was subjected to taunts of:
"You're crazy!!! You sold out too soon!!! There is NO bubble!!! The Alpha Thugs and Pigmen are gonna get carried out on stretchers, Blah, blah!!!..."
...when the Mad Monk admonished the Walter Mittys that once Uncle and the Pigs decided that things were getting outta hand in the gambling den, they would simply step in and start changing the rules.
Well, lo-and-behold, that is exactly what happened:
The screws have begun to turn on the thumbs of the F12 monkeys, with margin requirements being ratched up day-after-day.
And look at the price of spoons: it's getting crushed in the mad scramble out of the den of iniquity, as shown unmistakably in the chart below.
And please don't make the financially-fatal mistake of believing that Uncle is gonna stop there. He won't hesitate to implement other, more drastic, measures if the monkeys don't get the hint.
(Ras Conclusion): Ras hopes and prays that no one really bought off on the lies told by so many whip-and-spoon-shilling Websites, blogs and pundits that, any minute now, silver was gonna again be accepted as "money". Clearly that little meme is being destroyed even as Ras pecks out this puny missive.
For, the only ones being slaughtered right now are the fools who didn't climb down off the chandeliers when those with some sobriety were warning them that the party was getting totally out of hand.
Next up: The goons are going to set their sights on the whip parlor and crush the GHSers.
Count on it.
Margin raises don't fix supply and demand.
They sure as hell affect the spot price. Seen the housing market lately?
Oh right, because no-down 125% LTV ARM mortgages are TOTALLY COMPARABLE to silver at 11% margin.
Those two are not even comparable by a long shot.
Are you denying that margin raises on assets affect price?
Well, in a perfectly balanced market, raising margins should have the same down pressure as up - unless you have a few institutions sitting on massive short positions.
Does that sound like the PM markets to you?
Btw, please justify the 3% LTV mortgages which the establishment accepts, even with a declining housing market.
RoboLemming, your pigmen heroes can only do ONE thing: print paper and make promises that can never be kept, but they can NOT create one ounce of silver, or anything else. That is their Achille's heel, and seals their inevitable doom.
When that day arrives, I will remember you, and Leo, and all the other cowardly, venal, amoral, collaborationist, soulless bastards like you, and gloat and celebrate your pain and anguish.
COMEX inventory:
******************
33 000 0000 million ounces = 66 000 'monsterboxes' / 195 countries worldwide = 338 'monsterboxes' per country
HA HA HA
how cool is it to have 1% of all available comex silver for you county :P
To be fair, the COMEX only delivers 5% of the world's silver production.
But 1/20th of a % isn't bad when we are talking about these scales.
Your talking outta your ass. Show us some facts Gomer.
it's in the public books dumbass, go and google it
I did and his numbers are WRONG penis face
Maybe he doesn't use miraclulous numbering system.
to be fair I said 1% of comex silver ;)
Admit it you were wrong
here are the crimex banks' gold & silver stocks as of this afternoon: DJ Comex Gold And Silver Warehouse Stocks-May 12
it seems simple enough to me: if you look at silver trading from 21st Apr onward, you can see a huge jump in volatility. just by looking at a daily bar chart. you dont need the CME to publish precise SPAN algorithms to understand that margins would be increased. as it started to fall on 2nd May, volatility obviously increased significantly again.
these are exactly the conditions where margins would be increased in any market. why is that so hard to understand? why would anyone go looking for other reasons?
when will margins go back down? well, probably when silver stops having daily ranges in the $5-$10 area, and back to something more typical, like 50c to $1. again, why does anyone even need to ask?
again, why does anyone even need to ask?
Because they are long term holders of physical only?
None of it makes sense to me, either. Two or three articles a day on silver, and hundreds of passionate comments. Seems to me if I was a long term holder of physical only, margin hikes in paper markets would be of no concern, as that would be someone else's problem. Certainly I would not let it raise my blood pressure.
The intent is to keep Joe Peasant from sparing his assets on the relentless climb in prices, so that he accepts world govt or starves.
The only way to keep up is to buy gold and silver in physical form and hold it. No futures, no mining shares, no ETFs. Since the bull market began in 2002 the best performer in the sector has been bullion - hands down. Don't buy paper!
Why do the masses make things complicated?
Yes, the latecomers are causing much of the volatility, and yes, many on the board who say they see so clearly didn't have clarity when silver was 10 and gold was 650, but only when the 30 and 1325 price points were set less than a year ago.
The endgame is 3000 gold and 75-100 silver by the end of 2012. Will those predicting this survive with assets and performance intact?
Based on what I am seeing, many on this board will somehow be wiped out, which is the intent of the globalists all along.
Arent margins jsut a function of volatiltiy not direction of the underlying instrument?
The CME wants you to believe margin is based on downward volatility, too. It really wasn't before. The margin requirements forced people to keep a cushion in case of price corrections and the margins were enough that if a trader fell below that threshold, liquidations were carried out.
Now the CFTC, etc., want us to believe a lie and that as prices drop, margins have to be increased. This is bogus, for the margin hikes cause the very downward volatility the authorities say they are attempting to avoid.
The Ministry of Truth has many people believing the lie. And to me that is doubleplusgood. Lots of dummies trading where they should not be entering.
Don't buy paper! To hell with paper. Prices will suck until June expiration when many will want delivery. The COMEX is hoping that enough idiots sell their physical by then.
Arent margins a function of volatility not direction of a product..
I am lookign at SLV and see 1 month implied vol went from 37%
on April 15th when SLV was 42 to 50% on April 28th
when it hit the high of 48.25 intraday.. It makes perfect sense for the exchange to hike margins by 30% when implied vols go up by 30%..
It seems there is too much ignorant conspiracy theories and mindless bias
on ZH
Margin adjustments (LEVER) the risk side of the trade.
It’s never made sense to me why the exchanges even get involved with margin requirements. It puts them in the position of playing risk and credit manager with exchange participants which is not their primary role, and impossible to do with a one-size fits-all approach. I think if someone wants to buy commodity futures they should have to put up 100% of the purchase price, just like they must do if they want to buy the physical commodity. If they want to short the futures market, they should have to prove they own the physical or at least have a contractual commitment for future physical delivery to cover their short. If an exchange participant wants to finance or borrow money to complete a transaction, fine, let them borrow from a qualified lender, or their cousin Vinny. The exchange shouldn't even be involved in that part of the deal. Who at the COMEX can know for sure that a margin buyer isn’t borrowing his margin requirement from his cousin Vinny now, at an interest rate of 10% per day?
well, 100% may not be necessary, but something like 75% should cover almost everything, right? I mean, they can still do hikes in cases where even that isn't enough - at that point, it really doesn't make much difference on spotprice anymore anyways. Just get this stuff out of the equation and be done with it.
The trade is based on ancient arbitrage. Risk is risk. Who in reality could put up 100% of their trade? 100K is highly unlikely, and completely out of touch with risk. 1:1 investment?
When you purchase PUTS and CALLs on defined dates, your are in effect reserving a right to exercise an option. Your house is a put or a call! Your equity line of credit is a CALL! ANY QUESTIONS? P.S. I own my property outright.
That's what the guy who shorted oil at $40 said, way way back in September 2010.
You just passed trading 101! Well Done!
In the civilised world, they dont. But the exchange and the clearing house are owned by the same entity, CME group.
https://www.cmegroup.com/company/membership/files/Summary-of-CMEG-Clearing-Membership-Requirements.pdf
Then there will be no liquidity and no price discovery, thus defeating the purpose of futures exchanges.
Without the possibility of naked positions, there will be no market makers, and hence no liquidity.
When you borrow from the clearing house/exchange, your leverage is interest free. Qualified lenders tend not to do that. Because your loan from the clearing house/exchange is interest free, they require that you post collateral (margin) to cover your losses.
It's irrelevant, because they are holding your money. They don't care where you got it from. Look, there are some shenanigans going on in the silver futures market right now, but that doesn't mean that futures markets serve no purpose. Modern industrial agriculture requires large capital input before the crop can be harvested. Futures markets faciliate our modern system of food production by supplying capital to producers, highly leveraged and interest free. Silver is different though (and gold). Precious metals have been used in economic warfare for thousands of years, and not only nation against nation, also as a type of class warfare within societies. The value of gold and silver was until recently, largely an illusion, but it makes a good hedge against fiat currency inflation, as both tend to be convertible anywhere in the world (should you need to escape).A change in fundamentals (whatever the fuck those mean anymore) were not behind the recent move in silver - this is all quite amusing.
+1 classic :)
Fundamentals Technicals and Trend! Don't you ever forget that. If you trade m15 or Swing your trades.
Always manage your margin (RISK)
Mr. Alchemist, there are too many naive fools who know a little, but earn nothing.
I stick with COMEX. There are so many stupid fools trading. I don't care about SLV. I stick with COMEX. Babes in need of milk shitting a brink over SLV? Stop wasting the space. What a fool.
Interestingly, CME and CBOE have held up in the sell off. What does that say about vol and number of transactions? What is that saying to the commodity-collapse-strong-dollar pundits? Zimbenification is alive and well - at least according to the market.
COMEX hikes increasing as prices drop. Yes, that's just conspiracy nutjob talk. There will probably be more COMEX margin hikes. Let me know when you go long, so I can short again in my trading account.
Relax people. This momentary blip was to save JPM from bankrupcy (I know, like saving a mummy from death). Will the central planners stop planning? Will the central bankers stop printing? Will the economy find footing in the extend-and-protend absence of price discovery? And, guess who will need to cover their shorts.
Enjoy your gift.
Our "gift" is just right now taken in truckloads by those parties who were fucked and who's monopoly we wanted to at least reduce.... and thanks to those measures kicking in just at around 50$, the mainstream news of silver going beyond the record, never happened, thus, an increase in capital of taking physical away from them, was prevented before it could reach critical mass. I am pissed, because i'm thinking about more than myself. It's just another episode of bailing out "too big to fail". Fuck you CME.
I seriously doubt any of you are actually trading (XAG) 5000 toz contracts. I personally have 4 FULL contracts that are waiting for a bid. You people are trading Dervatives.
AP for D/P
Jamie Dimon may be the devil incarnate, but do you really think he is a moron? If Blythe had really put the future of the bank in doubt, do you think Dimon would let her stay head of the Commodity Prop Desk, much less with the firm itself? And given that JPM has had perhaps one losing day in the last year on its combined prop desks, do you think the other traders at JPM are THAT good that they could make up for the tens or hundreds of billions of dollars that Blythe would have lost them if she was as short as people say?
I wonder how much urban myth, or incomplete information, is at play in the Blythe story?
I'll call a spade a spade or CME a "price fixer". TPTB weren't comfortable , scratch that, were scared of $50 silver. Risk management my ass.
I think I remember the maths on this..
(Y^n) = X
where:
X = CME silver margins
Y = Number of times Max Keiser tell people on Russia Today to buy silver for Physical delivery
n = No of paper shorts shitting bricks..
LOL
PLUS ONE) That tool thinks an algo makes it right?
I posted the trendline and the margin management requirements. We can range trade. Where that range is I don't know, but I can absorb 20 dollars of xag movement.
In over a century...
Have we ever seen this?
Silver liberation army has spot at roughly under what silver used to be. LOL
Here come the Junksters. Out of cash and defrayed.
This article makes me laugh....at the irony
The CME perceives the glass as half empty
The reality is that they are a present day King Midas...with their margin hikes and restructuring of their casino.
They are delivering the treasure trove to all parties: The bullion banks, the small speculators "longs and shorts", and the non-trading holders of physical.
I'm confused as to why any group would want to complain....this is PFM (pure f**kin' magic) at the highest order....a veritable perfect blueprint for all parties involved.
That was well written. Reminds me of Prohibition. Keep up the OLD SCHOOL thoughts.
" 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."
Any way to verify the veracity of this statement? I'm skeptical.
Let me tell you all the REAL reason why the CME hiked the Margins.
They raised Margins and Shorted so that they could drop the price of Silver. This allowed the purchase of Silver Blanks from around the world to be made much cheaper.
This was merely an exercise to attain Silver at a the best possible price in order to coin American Eagles!
Is this confusing for anyone so far???
Now, the big question, why coin American Eagles??? Answer: What's the trend of the US Dollar at the moment, and what's about to happen on the 30th June???
They are coining for the inevitable credit contraction and possible currency collapse!
There will be no investigation into this matter!
Is there even just the slightest of chances that Soros and his merry band of cutthroats were given a heads up on these hikes? Nah, didnt think so. Coincidence.
Maintain your margins! Who cares what CME does if you ! MAINTAIN YOUR MARGINS!
I think he means keep a little spare change around just in case the meter runs low......makes sense.
Your second sentence is key....and the answer to everyone's question as to the why.
Why?.....not because I need to know....because I want to know....out of curiosity....
....NO...not really....I really don't give a rat's 6 'o' clock
What's lost on most is the fact that the CME Group is the proprietor of that particular casino house. The players darkening their doors are not obligated to participate....exit doors are clearly marked...and nobody is forcing anyone to stay in their seats and "let it ride".
What's absolutely coincidental in the most humorous way...is their ability to satisfy so many opposing parties that are at odds with everyone else....then feel it their duty to explain themselves after the fact....following doing such an exceptionally proficient job at providing a dream scenerio for so many keeping up with current events in PM's
There is no fraud in monkeying around with the margin requirements....the CME Group is free to manage their Comex house/biz in any way that suits their interests. I for one hope they continue to operate in the slapstick/haphazard fashion that most will come to associate them with. While they will most likely not stand the test of time....I would take great enjoyment should they solidify themselves in the history books...they are on the perfect path to not disappoint.
Wow, I'm gonna buy shares in Rope, we're gonna need a shit-load at this rate!
Oooooooorrrrrr.....http://www.youtube.com/watch?v=wlq0lYB3iSM
Might as well you crims!!!
I was just watching a bit on a Canadian news channel on commodities. The 'expert' they had on seems to be following what is now the official story 'speculators have destroyed price discovery'. Basically, it's not the CME's fault is the official line.
No mention was made of the hot money sloshing around from the relentless printing of fiat dollars.
The new bogeyman is offically established. The 'experts' are calling for the evil speculators to be reigned in, government must step in (price controls). Speculators are manipulating the market.
The TBTF banks will not be classified as part of the problem of course.
I need a freaking toothbrush after being fed that much shit. How people believe this crap spewing out of their mouths, or how they can even think that what they say is believeable is a mystery to me. What F^&%ing idiots. All out for that promotion!