What Do They Know? CME Implements Gold, Precious Metals Circuit Breakers Up To $400 Wide

Tyler Durden's picture




 

With memorandum S-7258, titled "Implementation of New NYMEX/COMEX Rule Regarding Special Price Fluctuation Limits for Certain NYMEX and COMEX Metals Futures and Options Contracts" released moments ago by the CME Group, and set to become effective on December 21, 2014, and which seeks a 5 minute trading halt when "price movements in lead-month primary futures contracts result in triggering events"...  "as a measure that is consistent with promoting price discovery and cash-futures price convergence" in order to "deter sharp price movements that may, for example, be driven by illiquid central limit order books prevailing from time to time in otherwise liquid markets", one wonders why now, and what does the CME know about upcoming volatility, or lack of liquidity, in the precious metals space that nobody else does (and does any of this have to do with the "berserk" algo test from November 25?)?

To wit, from the CME, highlights ours:

Implementation of New NYMEX/COMEX Rule Regarding Special Price Fluctuation Limits for Certain NYMEX and COMEX Metals Futures and Options Contracts

Background

Effective Sunday, December 21, 2014 for trade date Monday, December 22, 2014, and pending all relevant Commodity Futures Trading Commission regulatory review periods, the New York Mercantile Exchange, Inc. (NYMEX) and Commodity Exchange, Inc. (COMEX) (collectively, the Exchanges) will implement new NYMEX/COMEX Rule 589 (Special Price Fluctuation Limits) to apply price fluctuation limits to certain metals futures and options contracts. Price fluctuation limits deter sharp price movements that may, for example, be driven by illiquid central limit order books prevailing from time to time in otherwise liquid markets.

NYMEX currently applies price fluctuation limits to its energy complex of futures and options contracts. These limits are referenced in each contract’s respective NYMEX product rulebook chapter. The Exchanges are proposing new Rule 589 to extend price fluctuation limit functionalities to certain metals futures and options as a measure that is consistent with promoting price discovery and cash-futures price convergence. The operation of new Rule 589 for metals futures and options contracts is described below. The full text of the new rule is set forth in Appendix B. Appendix C provides the specific limit levels for the relevant NYMEX/COMEX contracts to which Rule 589 will apply.

The Operation of New Rule 589 for Metals Futures and Options

At the commencement of each trading day, new Rule 589 will require the Exchanges to determine initial price fluctuation limits as levels above or below the previous day's settlement price for lead-month primary futures contracts. There are three primary COMEX metals futures contracts and two primary NYMEX metals futures contracts. These contracts have the largest and most liquid metals central limit order books on CME Globex or are considered separate and distinct stand-alone products on an outright basis. The lead-month contract, as determined by the Exchanges, will typically be a primary contract’s most actively traded futures contract month.

The Exchanges will monitor the price movements of lead-month primary futures contracts in real-time on a daily basis. Price movements in lead-month primary futures contracts will result in triggering events. Triggering events result in monitoring periods, possible temporary trading halts followed by the re-opening of trading, and price fluctuation limit expansions.

If the lead-month primary futures contract is bid or offered via CME Globex at the upper or lower first special price fluctuation limit, the Exchanges will consider such an occurrence a triggering event that will begin a five-minute monitoring period in the lead-month contract. If at the end of this five-minute period the lead-month primary futures contract is not bid or offered at the applicable limit, the Exchanges will expand the limits an additional price limit increment above and below the lead-month contract’s previous-day settlement price. If, however, at the end of the five-minute interval, the Exchanges determine that the lead-month primary futures contract is bid or offered at the applicable limit, they will commence a two-minute temporary trading halt in all contract months of the primary futures contract as well as in all contract months of associated products. Primary contracts and associated products are identified in Appendixes A and C.

Following the end of a temporary trading halt, the Exchanges will re-open trading in all contract months of the primary futures contract as well as in all contract months of associated products. When trading resumes, the Exchanges will expand the price fluctuation limit an additional increment above and below the lead-month contract’s previous-day settlement price. Subsequent price fluctuations, if significant enough, will trigger the same sequence of monitoring periods, possible trading halts followed by the re-opening of trading, and incremental adjustments to price fluctuation limits.

As noted above, when an initial triggering event occurs, the Exchanges will commence a five-minute monitoring period. In each instance, the Exchanges will subsequently expand the price fluctuation limit for all primary futures contract months, as well as all associated products, by an additional increment above and below the lead-month contract’s previous-day settlement price. The incremental adjustment will occur regardless of whether or not a trading halt is triggered. However, no further special price fluctuation limits will be implemented following a trading day’s fourth price fluctuation limit adjustment.

Expiring Contracts

There shall be no special price fluctuation limits for an expiring primary metals futures contract during the period between and including the contract’s first intent day and the last delivery day. The Exchanges will also not call temporary trading halts or an expansion of special price fluctuation limits for primary futures contract months or their associated products during the last five minutes of trading between and including the first intent day and the last delivery day of a related expiring primary metals futures contract.

Floor Trading

The Exchanges will apply special price fluctuation limits to all primary metals futures and options contracts and all associated metals products that are available for trading on the floor. Although the Exchanges will limit all applicable markets on the trading floor at these price levels, floor trading in lead-month primary futures markets at these price levels will not constitute a triggering event under new Rule 589. In all instances when a triggering event resulting in a trading halt occurs on CME Globex, the Exchanges will immediately halt floor trading in all contract months of primary futures contracts and associated products. The Exchanges will implement a coordinated temporary trading halt for any floor-traded associated products that are options on primary contracts or other associated products. When the Exchanges re-open CME Globex markets with expanded price limits, the Exchanges will simultaneously re-open all affected markets on the trading floor with the expanded limits in place.

Questions regarding this notice may be directed to:

U.S.

Joann Arena +1 212 299 2356 Joann.Arena@cmegroup.com
Miguel Vias +1 212 299 2358 Miguel.Vias@cmegroup.com
Youngjin Chang +1 312 466 4637 Youngjin.Chang@cmegroup.com
Fred Penha +1 212 299 2353 Fred.Penha@cmegroup.com

Europe

Sandra Ro +44 203 379 3789 Sandra.Ro@cmegroup.com
Harriet Hunnable +44 203 379 3704 Harriet.Hunnable@cmegroup.com
Anindya Boral +44 203 379 3738 Anindya.Boral@cmegroup.com
George Adcock +44 203 379 3737 George.Adcock@cmegroup.com

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Thu, 12/11/2014 - 19:45 | 5542126 MisterX
MisterX's picture

uh oh

Thu, 12/11/2014 - 19:46 | 5542132 Arius
Arius's picture

getting ready ... just in case

Thu, 12/11/2014 - 19:50 | 5542140 zaphod
zaphod's picture

Who cares what pricing they provide to each other. 

Does not affect quantity or value of the coins in my possession. X # of ounces today will still be X # of ounces tomorrow

Thu, 12/11/2014 - 20:00 | 5542180 Cognitive Dissonance
Cognitive Dissonance's picture

"....set to become effective on December 21, 2014...."

Santa Claus is coming to town. He knows if you've been good or bad.....

Thu, 12/11/2014 - 20:05 | 5542194 Clint Liquor
Clint Liquor's picture

CME will only step in before PMs go up. They have shown they don't care what is done to drive the price down.

Thu, 12/11/2014 - 20:14 | 5542198 nope-1004
nope-1004's picture

Free market at its finest.  This is a horrible joke considering what they've done to oil as an act of war.

 

CME is a fraudulent agency through and through and the CFTC is a maggot infested hive.

 

Thu, 12/11/2014 - 20:16 | 5542215 SWRichmond
SWRichmond's picture

Does anyone is these markets know what "proce discovery" actually means?

Or is CME about to find out?

Thu, 12/11/2014 - 20:18 | 5542221 flacon
flacon's picture

Do you guys remember when the CME reduced margin requirements a couple of years ago? The gold crowd was going nuts thinking this was the moon-shot, but they were disappointed when the metals crashed. The honest answer is: WHAT WILL HAPPEN TO THE PAPER PRICE OF THE UNDERLYING ASSET? WILL IT CRASH TO ZERO OR GO TO INFINITY?

Thu, 12/11/2014 - 20:28 | 5542240 Xibalba
Xibalba's picture

CB's gonna stop naked shorting it? 

Thu, 12/11/2014 - 21:01 | 5542353 I MISS KUDLOW
I MISS KUDLOW's picture

maybe just maybe they are talking about AFTER gold is revalued to the fuqqin moon

Thu, 12/11/2014 - 21:33 | 5542442 SoberOne
SoberOne's picture

We circuit-breakered some folks...

Thu, 12/11/2014 - 21:58 | 5542525 knukles
knukles's picture

I fail to understand what they're talking about stopping the price discovery process when its not being discovered anymore.
Oxymoronic schizophrenic cognitive dissonance if you ask me.

Thu, 12/11/2014 - 22:21 | 5542595 Manthong
Manthong's picture

“promoting price discovery”..   at the CME ?????? 

Ha ha ha ha ha ha ha ha ha ha ha ha ha ha !!!!

I’m dying here…

 

Thu, 12/11/2014 - 23:16 | 5542795 MalteseFalcon
MalteseFalcon's picture

I don't care about the market price of anything.  They are all lies anyway.  The time is coming when prices won't matter.  Timing won't matter.  Only two things will matter.  First your sense of smell so you can smell the "naplam".  The second is the ability to cope in a "napalmed" environment.

Thu, 12/11/2014 - 23:26 | 5542835 Manthong
Fri, 12/12/2014 - 01:57 | 5543207 PAPA ROACH
PAPA ROACH's picture

A bunch of weird shit, all rolling together into a giant ball:

 

-Equity index's and options for the Dec contracts expire Friday the 19th, just prior to this going into effect for Sunday nights Globex opening. How convenient the FED's long duc dong ES position will have just rolled off the books on Friday, fully out and unable to lose anything on a market drop.

 

-Bank oversight crews are getting US Treasury issued "survival kits"

 

Maybe America goes home one Friday, and all banks accounts over 100,000 gets a "Cypress levy" over the weekend, a 'one-time wealth tax' to be "patriotic" and do your part! THAT is an event that would create some four-tiered circuit breaker needs......

Fri, 12/12/2014 - 03:37 | 5543298 TEOTWAIKI
TEOTWAIKI's picture

speaking of wierd:

LONDON (AP) — The death of a financier whose body was found impaled on railings outside his luxury London apartment isn't being treated as suspicious, police said Thursday.

Scot Young's body was found Monday outside his apartment in central London. Officers were called to the scene after receiving reports that a man had fallen from a fourth-floor window.

Fri, 12/12/2014 - 05:30 | 5543371 johnnyarrowmaker
johnnyarrowmaker's picture

Now that would be the guy who was hung out of a window by the Russian mafia two years ago ....

Things happen when you poke the bear.

Fri, 12/12/2014 - 08:43 | 5543603 agstacks
agstacks's picture

"I don't always jump out windows, but when I do, it's the 4th floor"

Fri, 12/12/2014 - 03:44 | 5543304 TwoShortPlanks
TwoShortPlanks's picture

The CME have been setting up in Asia. They're assisting China in setting up its' own platform and getting in at the foundtion level...and they've been helping the Chinese to US Gold and whatever else drops whe  the tree gets shaken (weak hands).

This is why I've been calling the Gold take-down China’s Bretton coup d'état.

http://twoshortplanksunplugged.blogspot.com.au/2013/05/brics-currency-gold-and-debt-based.html

Fri, 12/12/2014 - 06:31 | 5543417 old naughty
old naughty's picture

Is the China long silver another dot to connect?

Fri, 12/12/2014 - 06:55 | 5543418 old naughty
old naughty's picture

dup.

Fri, 12/12/2014 - 09:00 | 5543657 cnmcdee
cnmcdee's picture

So you just basically exposed a plan of a coming staged super terrorist attack coming in the next week, followed by a cyprus money grab.

Fri, 12/12/2014 - 16:53 | 5545899 daveO
daveO's picture

Probably by year's end, if it happens. I'd guess a false flag near NY FED building. They'll say gold is untouchable for umpteen years but, in reality, it's already in China. 

http://www.zerohedge.com/news/2013-10-18/chinas-largest-conglomerate-buy...

They absolutely love Christmas surprises. It's their way of sticking it to Jesus lovers. 

Fri, 12/12/2014 - 01:26 | 5543151 Syrin
Syrin's picture

So does this mean they expect prices to go meteoric or bottom out? Truly, I don't know. Thoughts?

Fri, 12/12/2014 - 07:27 | 5543469 SAT 800
SAT 800's picture

Come on, you know they have to "talk nice". I think it's an exciting anouncement; that means it's more likely that Silver will be significantly more expensive next Christmas than it is this Christmas.

Fri, 12/12/2014 - 06:35 | 5543422 mc225
mc225's picture

they're like, 'heads we win, tails you lose'

Thu, 12/11/2014 - 21:35 | 5542453 SoberOne
SoberOne's picture

We circuit-breakered some folks...

Thu, 12/11/2014 - 22:29 | 5542619 Spigot
Spigot's picture

Wife - "Honey, why do you have a condum in your wallet? I had my tubes tied 5 years ago."

Husband - "Wha?! Probably an old one from before then ..."

Wife - "Looks really new to me, along with this receipt that is dated a week ago."

Husband "Ummm, well, yeah, ummm, might have just been a reflex when I saw the old one in there..."

Wife - "..."

Husband - "..."

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Ya know, 'cause, well it's always good to plan ahead, right?

I'm sure these revisions are nothing, just updating some old tables...

Thu, 12/11/2014 - 23:57 | 5542931 Quus Ant
Quus Ant's picture

Mother Russia gave crony capitalism an honest go-

the polite thing to do is for us to take communism for a whirl.

 

light the candles, cue the music, drop the curtain. 

Fri, 12/12/2014 - 01:58 | 5543210 PAPA ROACH
PAPA ROACH's picture

Never stops being funny; anything absurd sounding, ending with '...some folks'

Fri, 12/12/2014 - 09:12 | 5543710 RaceToTheBottom
RaceToTheBottom's picture

"There shall be no special price fluctuation limits for an expiring primary metals futures contract during the period between and including the contract’s first intent day and the last delivery day. "

So does this mean guys playing calls/puts near the expirey dates are just SOL?

Geeze that could not be manipulated.....

 

Thu, 12/11/2014 - 20:47 | 5542317 WhackoWarner
WhackoWarner's picture

The paper price has nothing to do with actual price.  When the bid goes sky high and no metal is on offer. CME who needs Vegas?

 

And that is when paper is exposed.  And the market gets real.  REAL ounces never trade on CME.  Not anymore I thinks.

 

But maybe the bid will go (where???) and the ask will not be there.  Because gold will not be on offer at the casino.

Thu, 12/11/2014 - 20:50 | 5542323 WhackoWarner
WhackoWarner's picture

Oh yeah.  "We fleeced some folks"

Thu, 12/11/2014 - 21:09 | 5542374 SRSrocco
SRSrocco's picture

This reminds me of the 5 consecutive CME Silver Margin hikes in April-May 2011 which brought the price of silver down from $49 to $35 relatively quickly. 

My newest artcile:

CURRENT PRICE OF SILVER $50: Based On The Historic Oil-Silver Ratio

http://srsroccoreport.com/current-price-of-silver-50-based-on-the-historic-oil-silver-ratio/current-price-of-silver-50-based-on-the-historic-oil-silver-ratio/

Shows how the current price of silver should be $50, according to the 1960's oil-silver ratio. 

 

Thu, 12/11/2014 - 21:56 | 5542515 Save_America1st
Save_America1st's picture

thanks Steve....I was thinking of the same thing about back then in 2011.  We don't hear much about margins lately though, do we?  And the paper PM spot has been down ever since they did that in 2011. 

The end is coming...it may or may not be "near"...but it's closer than ever before and I personlly think it'll be within 2 years maximum. 

Regarding the silver price.  I've read much that many people estimate that based on the 1980 silver high and adjusted for inflation since then, silver should be somewhere around 135 an ounce today.  Does that seem right and/or do you agree?

And does that mean the silver/oil ratio should be adjusted along with that estimation?  That would put the price of a barrel of oil insanely high compared to today...well over 600 bucks a barrel.

Should the 2 be compared with each other in this way???  Silver is real money...but should oil be considered that valuable compared to silver?  Maybe the true ratio would be closer to 1:1???

 

Fri, 12/12/2014 - 14:03 | 5545112 Thisson
Thisson's picture

Silver is an industrial metal.  The industrial economy is going to shit.  So it's no real surprise that silver is down sharply.

 

Fri, 12/12/2014 - 16:56 | 5545936 daveO
daveO's picture

They only raise margins when the 'house' is losing. 

Thu, 12/11/2014 - 21:33 | 5542443 Cacete de Ouro
Cacete de Ouro's picture

Don't ask Harriet Hunnable anything. She's a fork tongued bluffer. Everything that comes out of her mouth is just bullshit spin.

Fri, 12/12/2014 - 01:24 | 5543129 noben
noben's picture

"We fleeced some folks"

Ah, "The Golden Fleece". Neo-Classical style.

Thu, 12/11/2014 - 20:18 | 5542222 SuperVinci
SuperVinci's picture

No. What is proce discovery?

Thu, 12/11/2014 - 20:47 | 5542312 SWRichmond
SWRichmond's picture

Proce discovery is something you get when posting from your phone.

Thu, 12/11/2014 - 21:46 | 5542490 ABG LINE
ABG LINE's picture

LoL!

Fri, 12/12/2014 - 01:27 | 5543153 noben
noben's picture

Price discovery is not unlike a Wish sandwich.

Don't make me explain it to you.

Fri, 12/12/2014 - 01:50 | 5543193 BrokusDickusMaximus
BrokusDickusMaximus's picture

When we were kids mom would take the slice of baloney out and rub it on the slice of bread. We would fold the slice of bread over and munch away. The baloney got put back in an empty mustard jar and put back in the ice box.

Thu, 12/11/2014 - 21:47 | 5542491 Meme Iamfurst
Meme Iamfurst's picture

it is also what you get at the super market and open the jar and find water and no meat.

Fri, 12/12/2014 - 01:40 | 5543175 JAFAH
JAFAH's picture

+1, because I buy all my meat, at the supermarket, in a jar...

Fri, 12/12/2014 - 02:04 | 5543219 Harbanger
Harbanger's picture

I'm thinking of selling dehydrated water in jars.  Different sizes to fit all budgets, I'm gonna be rich.

Fri, 12/12/2014 - 07:06 | 5543447 Ahoy Polloi
Ahoy Polloi's picture

I like to put a humidifier & a dehumidifier in the same room & watch them battle it out.

Fri, 12/12/2014 - 07:08 | 5543451 espirit
espirit's picture

Market it as H2O, they'll never have a clue.

Let's see, 50% of 7billion equals.....

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