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Shanghai To Lower Silver Margins For Second Time In Two Days If No Wild Swings In Price Today

Tyler Durden's picture




 

The Shanghai gold exchange demonstrates that unlike in the US, where margin hikes only go one way, following a surge in volatility which results in margins getting hiked, once said volatility declines, margins usually are cut. According to a press release from the exchange issued overnight, the Shanghai Gold Exchange said it will lower margin requirements for silver to 15% from 18% after the close of business Monday if there are no sharp price movements during the day. It will reduce upper and lower limits to 10% from 13%, effective
Tuesday, if Monday's intraday trading doesn't hit either limit, the
exchange said in a statement on its website. This is the second margin drop at the exchange following a comparable one last week when margins peaks at 19% only to see a 1% decline. For those not versed in math, this is a whopping 20% drop in silver margins over the span of two days. In the meantime, the crickets from the CME continue, and in fact we are hearing rumors of more margin hikes from the Chicago boys.

More from Dow Jones:

The bourse has been adjusting trading margins and both upper and lower limits in recent days as part of its normal operations in monitoring and curbing price volatility.

On Friday, it said the margin requirements will be eased to 18% from 19% but that it would keep upper and lower limits at 13% after raising them from 10% on Thursday.

On Thursday, it said trading margins would be hiked to 19% from 18% and upper and lower limits raised to 13% from 10%, effective Friday. That was the fourth set of changes since May 6, as the Chinese exchange for gold and silver spot trading has been making adjustments in response to price movements in global precious metals markets, which are a major driver of local prices.

 

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Mon, 05/16/2011 - 08:40 | 1278576 onesoul
onesoul's picture

Economically/Financially no. Shanghai exchange use Yuan which is not freely traded(restricted) outside of China. So price impact to COMEX will be minimum.

However, in theory, same risky asset should be priced the same. So silver price in Shanghai exchange have effect on the precieved value of silver in COMEX. That is how NDF are used by ICE to affect real exchange rates of other countries.

My interpretation is: "We are lowering the silver margin tomorrow, if you dare not to raise margin today(notices the deadline given)! What is your next move?". So if COMEX really increase margin in response, China will comply and keep a high margin, but COMEX and banker will show their vulnerability as clear as day night. If on other hand, COMEX do nothing, China will keep the silver party going and get as much cheap physical as possible.

Monday is always a good day for blackswan, fun to watch how much volatility will be generated minute by minute.

Mon, 05/16/2011 - 07:55 | 1278531 emsolý
emsolý's picture

Volatile prices creating volatile margin requirements creating volatile prices and round and round (or better: up and down) we go.

Either way, what doesn't change is that, still, 100% is needed to take physical and as long that doesn't change and more and more participants are demanding such delivery, silver's fundamentals are in the same good shape.

Mon, 05/16/2011 - 07:58 | 1278533 ZeroPower
ZeroPower's picture

So when silver surges due to lower margin reqs, one would assume a cry of MANIPULATION. But of course that wont happen as manipulation, according to silver bugs, in SI is only downward while they leave the ES to benefit from upward manipulation.

Mon, 05/16/2011 - 08:07 | 1278555 topcallingtroll
topcallingtroll's picture

This got me to wondering if too much participation is an issue.

In commodities there may be an optimal number of participants to maintain efficient price discovery.

Too many commodity players may create an emergent unexpected property of "mob passions" which detracts from efficient price discovery.

We have always thought the more buyers and sellers the better, but is there really an optimal level, an inverse U shaped function?

In honor of myself I call this the Troll Curve.

Mon, 05/16/2011 - 08:16 | 1278578 tmosley
tmosley's picture

Too many market participants?

Sounds like nonsense to me.  Like saying addition and subtraction don't work with large numbers

Mon, 05/16/2011 - 08:25 | 1278598 topcallingtroll
topcallingtroll's picture

What if too many spec participants creates a mob passion or mob hysteria environment?

It would be an interesting emergent property of complex systems.

I am only discussing spec players, not people who use exchanges for obvious business purposes.

Mon, 05/16/2011 - 08:45 | 1278660 tmosley
tmosley's picture

It is easier to get such an environment with a lower number of speculators rather than a larger one.  Especially when there are strong barriers between large groups of market participants (ie language, location, culture).

Thus far, China and India have NOT participated in the panic/mania selling that has taken place on the COMEX, if you want an example.

Mon, 05/16/2011 - 08:18 | 1278581 Tyler Durden
Tyler Durden's picture

Pretty sure that according to "bugs" an upward surge in prices met by margin increases, and followed by a price plunge would be accompanied by margin decreases.

Mon, 05/16/2011 - 08:32 | 1278609 ZeroPower
ZeroPower's picture

I hear ya, but the vol in silver hasn't gone yet, which is the ultimate worry for the exchanges. Eg: SI from Jan till mid April, nice systematic rise, $0.50-.80 rise/drop a day, whereas from May we've had already a few crazy intraday swings of $6.

But i do look forward to a ZH update the day we do get some margin decreases on the CME.

Mon, 05/16/2011 - 08:51 | 1278666 tmosley
tmosley's picture

There have been 12 margin hikes on the CME in the last year, where they have only lowered it once.  Remember, there was a largish correction last year.

So good luck with another margin cut.

Mon, 05/16/2011 - 08:00 | 1278537 cossack55
cossack55's picture

C'mon baby, 300%

Mon, 05/16/2011 - 08:02 | 1278539 Captain Benny
Captain Benny's picture

Wow, and they announced that they are doing it in advance.  They didn't do it secretly and leak it to their buddies playing in the market during mid-day trading like what the CME does!  They say: Here are the conditions where the margin changes.  The CME group must be really embarassed that the other exchanges are kicking their ass in open and honest exchange management.

Mon, 05/16/2011 - 08:08 | 1278558 Quintus
Quintus's picture

Wall St. has become the very definition of rampant, thieving 'Capitalism'.  Back to the age of the robber barons.  Why anyone continues to do business there is beyond me.

While the CFTC refuses to implement meaningful position limits on Metals trading and investigate complaints of manipulation and undue concentration of short position limits because they supposedly fear driving business to other exchanges, it looks like the real free market will do that for them.

 

Mon, 05/16/2011 - 08:53 | 1278657 yakmerchant
yakmerchant's picture

For the 800th time.  I can't believe Capitalism is being framed for this murder.  There are key words in your post. "thieving" and "robber".  Hence a breakdown in the rule of law.  Doesn't matter if there are free markets or not when there is outright corruption, and the goverment has it's prick in every hole imaginable picking winners and losers, prosecuting enemies all the while letting hyenas roam free breaking any and every law on the books.  Yes the system is a mess and needs to reset, but I implore people to choose their words carefully, as I'm real tired of Marxist douche lords blaming government backed crime on capitalism.    When this thing turns into the shitstorm of the milienia it will be everything we can do to fight the propaganda that capitalism caused all this and you and I should take our bowl of gruel from the new politburo and shut the hell up.

Mon, 05/16/2011 - 08:56 | 1278699 Quintus
Quintus's picture

Hey genius, do you know why 'Capitalism' is in quotes in my comment?  Do you have even a rudimentary command of the language, or do you routinely find yourself misinterpreting texts and making a fool of yourself?

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

Allow me to explain.  If it gets to hard for you, stop me and I'll see if I can draw a picture in crayon for you.

The use of quotes is intended to indicate that Capitalism is merely the front being used by the large Wall St. businesses and their captured political and regulatory playthings to disguise what is, in fact, a corporatist dictatorship intent on looting as much wealth from anyone dumb enough to come near it's rigged casinos.

You might also have picked up a clue from the use of "..real free markets.." at the end of my comment.  The word "Real", you see, it's a bit of a giveaway.

 

Mon, 05/16/2011 - 09:07 | 1278738 yakmerchant
yakmerchant's picture

Dude chill.  I picked up on "real free markets".   Did you not pick up on "I implore people to choose their words wisely".  I wasn't calling you a marxist douche bag, I'm implying that this place if full of said people and the battle in the future will be for people's minds.  Most people don't read zerohedge, and even if they did most aren't smart enough to read between the lines.  

Mon, 05/16/2011 - 09:16 | 1278769 Quintus
Quintus's picture

Fair enough.  I retract my comments :-)

Mon, 05/16/2011 - 09:15 | 1278755 mogul rider
mogul rider's picture

Oh cool so you're saying free markets like what we just had with the silver pump you guys laid out here is hte way to go?

Like hell.

Having the bloodthirsty hoards listening to pumpers all day long telling them that top callers are idiots and don;t sell. That silver is forever and going to 500 bucks an ounce would completely destroy any semblence of real price or orderly markets.

Do I have an answer? Not on your life and neither do you.

We have seen what happens when the select few around here dominate the story and turn the stupids into 48 dollar silver buying nutbars who get completely cleaned out.

As you slithering slime go back ionto you hole to load up again to sell to the stupids.

I'll take the bankers and HFT's thanks cause at least I know where the assholes lie.

Capitalism works just fine thanks

 

 

Mon, 05/16/2011 - 09:59 | 1278812 Quintus
Quintus's picture

"Oh cool so you're saying free markets like what we just had with the silver pump you guys laid out here is hte way to go?"

Yes, that is EXACTLY what I am saying.  You are clearly unfamiliar with the concept of a 'Free Market'

If somebody chooses to take advice from someone promoting (or dismissing) a particular investment then it's their responsibility to due their own DD and take responsibility for their actions.  As long as everyone is playing the same game, with the same rules, and with the same information, then we have a free market.

You, clearly, consider it preferable to have markets controlled by "..bankers and HFT's" operating on inside information and using their greater leverage and access to public money to scam other players.

Hilariously, you then conclude with the statement "Capitalism works just fine thanks", indicating how little you understand of Capitalism.  You promote a rigged gambling scheme run by your "...bankers and HFT's.." which in no way aligns with the primary purpose of Capitalism, i.e. that of efficiently allocating capital to the production of goods and services, and yet call this activity 'Capitalism'.  You, sir are a schmuck who believes the crap trotted out by your Corporatist masters.  By all means go away and play in your rigged markets until all your money is gone, but don't say nobody warned you.

Mon, 05/16/2011 - 09:46 | 1278863 tmosley
tmosley's picture

I guess when you have the investing horizon of a gnat, you might be right.

But for humans things are a bit different.  A year from now, you'll wish to GOD you had bought at $48.  I mean, come on, your ass has been here for more than a year.  You weren't complaining about "silver pumpers" a year ago.  Why?  It's the same damn message.  Get PHYSICAL SILVER.  NEVER trade it for dollars.  This implies that you shouldn't put money that you have to have in the short or medium term into silver.

Those who sold silver will likely never buy back in again.  They will always wait for a bigger dip.  They might get it in paper, but it just won't happen with physical.

No-one said this was gonna be easy, save to the extent that you just buy silver every month and refrain from selling for any reason.

Mon, 05/16/2011 - 11:21 | 1279264 Bay of Pigs
Bay of Pigs's picture

Mogul has nothing worthwhile to say on PM's anymore. His arguments make no sense at all. And the more he screams and hollers about a bubble, I know we haven't seen the high in silver by long shot.

Mon, 05/16/2011 - 09:59 | 1278933 Broomer
Broomer's picture

Communism is so beautiful in paper... so is capitalism. However, reality is a harsh mistress.

Real capitalism is always what you will get. Deal with it.

Mon, 05/16/2011 - 08:03 | 1278545 agent default
agent default's picture

Next up : CME hikes margins by 100%

Mon, 05/16/2011 - 08:03 | 1278546 Oh regional Indian
Oh regional Indian's picture

It's just fun to see Silver in the news for all the right reasons (and many worng, but right, if you get my drift).

And yes, CRIMEX lowering margins sympatico with the Chinese?

Thought not.

ORI

http://aadivaahan.wordpress.com/2011/05/15/the-times-they-are-a-changinggggg/

Mon, 05/16/2011 - 08:03 | 1278547 disabledvet
disabledvet's picture

what's a "wild swing" exactly?  like "taking a wiff" at the baseball when it comes blowing by?  or is just a "healthy cut" to "get your money's worth" when it's "your turn at bat"?  now "go in that silver market and start shorting there tough guy!"  it's going to zero!  you're a WINNER!  a HERO!  a regular Baby Ruth!  All seriousness aside of course BUT "why hike margin rates if there's no problem with prices?"  that is what the Fed chairman says over and over again, right?  "no problem with prices"?  needless to say "the economy is slowing down...." so prices should naturally...but...i'm easily confused of course.  all these beautiful women on television really are a distraction....

Mon, 05/16/2011 - 08:14 | 1278569 augie
augie's picture

I just imagine those chicks on T.V. all have AIDS. Actually, I do that for most women. Stop putting the pussy on a pedestal, and tell them all to get back to their plows.

Mon, 05/16/2011 - 08:02 | 1278549 Temporalist
Temporalist's picture
Gold-Coin Sales Reaching One-Year High Signal No End to Rally in History

http://www.bloomberg.com/news/2011-05-15/gold-coin-sales-at-one-year-hig...

 

Mon, 05/16/2011 - 08:05 | 1278552 Badabing
Badabing's picture

T-two days to HKMEX!

Mon, 05/16/2011 - 08:38 | 1278618 onesoul
onesoul's picture

Their clearing and settlement are done by LCH. I really wonder if that means HKME is still able to live outside of the Matrix (unplugged).

But it is only a begining so need to see the trading volume, physical delivery and if there is any cyber attack/system failure. I do worry about Hong Kong as an terrorist target as US warship group(that suppose killed Osama) just entered the habour.

Mon, 05/16/2011 - 08:09 | 1278563 Turd Ferguson
Turd Ferguson's picture

Never, ever in my wildest dreams did I ever think there'd be something where I'd end up trusting the ChiComs more than I trust the U.S.

Mon, 05/16/2011 - 08:17 | 1278573 Temporalist
Temporalist's picture

We're all virgins now!

Mon, 05/16/2011 - 08:21 | 1278587 SilverFocker
SilverFocker's picture

A counter to the Wall Street crooks. Asia See's the big picture, the future of all currencies will be based on gold and silver and they will not set and watch the U.S. manipulation without making their own counter moves.

There is a current competing market in India that uses gold and silver once again to hedge against the fiat and it seems the government there is accepting it with open arms.

Mon, 05/16/2011 - 08:44 | 1278645 topcallingtroll
topcallingtroll's picture

THE asians wouldnt dare give control of monetary policy to gold and silver.

The asian miracle depends on manipulated, suppressed currencies.

Mon, 05/16/2011 - 08:53 | 1278679 tmosley
tmosley's picture

The golden rule for the industrial era is this:  he who has the industrial base makes the rules.

That used to be the US.  No longer.

Mon, 05/16/2011 - 08:25 | 1278589 onesoul
onesoul's picture

So they said, "If you have the same enemy as mine, you are my friend!"

Mon, 05/16/2011 - 08:10 | 1278566 topcallingtroll
topcallingtroll's picture

The Troll has just discovered the reason why commodities, stocks, or any exchange traded good suffers from pricing distortions, paradoxically, as participation increases.

I honor myself by calling the function which describes the optimal number of speculative participants in any traded product as the troll curve. See my response below.

Nobel Prizes have been given out for less.

Mon, 05/16/2011 - 08:14 | 1278574 topcallingtroll
topcallingtroll's picture

For the visually challenged the vertical axis is pricing efficiency and the horizontal axis is number of speculative participants and the function is an inverse U.

Mon, 05/16/2011 - 08:15 | 1278577 falak pema
falak pema's picture

what nobel prize do you hanker for ? the peace prize for being always on the wrong side?

Mon, 05/16/2011 - 08:31 | 1278607 topcallingtroll
topcallingtroll's picture

You dont think huge numbers of SPECULATIVE players can hamper efficient price discovery? Via a mob hysteria effect?

Mon, 05/16/2011 - 08:21 | 1278579 Temporalist
Temporalist's picture

More reasons to buy PMs...if you needed them.

European Inflation Rises to Fastest in 2 1/2 Years

http://www.bloomberg.com/news/2011-05-16/european-inflation-rises-to-fas...

 

Mon, 05/16/2011 - 08:29 | 1278610 KidDynamite
KidDynamite's picture

why does Shanghai, even after LOWERING margin requirements, still have higher margin requirements than COMEX (yeah - check the facts, kids - COMEX doesn't require you to post 15% margin!)?  They are obviously trying to manipulate the price of silver lower... (/sarcasm)

Mon, 05/16/2011 - 08:39 | 1278634 Captain Benny
Captain Benny's picture

Did you ever stop to consider what inflation means and that Shanghai is full of it?  Inflation is a lack of demand for the currency.  With such lack of demand, people are moving their wealth as fast as they can out of money and into assets.  Shanghai has so much money flying around that of course they're going to have more evil speculators driving prices up... err down... err up... depending on what commodity it is.

Mon, 05/16/2011 - 08:38 | 1278633 friendly manitoba
friendly manitoba's picture

i thought it was called " the cab driver syndrome"  - when the cabbies became the experts  on the market  

the only latter participants usually being the doctors 

 

 

Mon, 05/16/2011 - 08:44 | 1278656 topcallingtroll
topcallingtroll's picture

Yep... i have an unofficial doctor index to look for sentiment as a contrary indicator.

Strangely they all hate stocks right now.

Mon, 05/16/2011 - 09:29 | 1278817 Spigot
Spigot's picture

Here let me fix that title for ya -

Shanghai To Lower Silver Margins For Second Time In Two Days After Its Owners Covered Their Shorts at a Handsome Profit, and Now are Positioned Long to Profit From the Next Leg Up
Mon, 05/16/2011 - 13:27 | 1279814 ffart
ffart's picture

I'm not an accomplished technician or anything, but it looks like silver is flailing its arms around and going "eeehhhhhhh".

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