CME Goes To Collateral DefCon 1: Makes Maintenance Margin Equal To Initial For... Everything!?

Tyler Durden's picture

Update: Based on unofficial statements by the CME, it appears that the exchange has gone the way of inviting more risk by lowering Initial to meet existing Maintenance margin across the board. We will likely only know for certain on Monday. We suppose the proposed explanation will be to minimize margin exposure for onboarded MF positions. Of course, that this is very much counterintuitive at a time when risk is spiking and vol readings per SPAN are soaring, and instead is inviting even more risk, is apparently irrelevant to the exchange.

The most important news announcement of the day was not anything to came out of Cannes  (as nothing did), nor from Greece (the merry go round farce there continues unabated). No, it was a brief paragraph distributed by the CME long after everyone had gone home, and was already on their 3rd drink. It is critical, because not only is this announcement a direct consequence of what happened with MF Global several days ago, but because also it confirms one of our biggest concerns: systemic liquidity is non-existanet. We confirmed interbank liquidity in Europe was at an all time low earlier today, and can only assume the same is true for US banks. But what is very disturbing is that this is just as true at the exchange level, where it appears the aftermath of the MF collapse is just now being felt. What exactly was the announcement. Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product. Because as of close of business on November 4, today, the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America... and the world. Just like when Lehman blew up, it took 5 days for Money Markets to break. Is this unprecedented elimination in the distinction between initial and maintenance margin the post-MF equivalent of the first domino to fall this time around?

From the CME (source):

And for those asking, here is a complete breakdown of all CME products and associated margins:

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SWRichmond's picture


Motley Fool's picture

I sense a disturbance in the force.

High Plains Drifter's picture

rick santelli was trying to talk about this stuff all morning long..........he was feeling a disturbance in the force..........

greased up deaf guy's picture



sucks to be (listed below):


strannick's picture

I heard it doesnt refer to 'everything' only to 'performance bonds' (thanks Ulikadese)

sqz's picture

Performance Bond, in the case of CME or clearing parties, normally just another word for acceptable collateral.

I'm guessing the error is that it does not apply to all products otherwise things get "interesting" (in Chinese proverb sense) on Monday, lol.

island's picture

Worse comes to worse, Timmy and Bennie will provide the collateral.

I'm thinkin' this is a snoozer - no way will TPTB let the CME wreak havoc.

tmosley's picture

Could be a "them or us" situation for the CME, if it's hand is stuck in the cookie jar.  They may well cut it off rather than being caught.  Damn the consequences from "TPTB".

nope-1004's picture

It's those damn evil speculators.  You know, the ones with the cash that the CME wants to steal.

They're all short now into early next week.  Going to ride this pig down and profit short, then steal positions back and ride it up as Ben announces more easing to come in the folloiwng weeks / months.  Money can't be made in a thin market without volatility.

It's all in a bankers life!  Get used to being stolen from and put aside the "injustices", and you begin to see the game for what it is:  The CME THEMSELVES are the evil speculators and bet wrong, now short on cash.  LMFAO!!



trav7777's picture's indicative of cash shortages.  The economy doesn't really support the growth of credit so everyone, in realizing that there is a shortage of it, is demanding more of everything upfront because the "down the road" picture doesn't look like anyone will be able to pay.

the system is no longer "creditworthy."

slewie the pi-rat's picture


it's tautological, trav!

  1. lack of liquidity = L0L
  2. L0L (EU) + L0L (US) = L0L (zH)

"We are not worthy!"

Ahmeexnal's picture

so if you are holding PMs in your hand, that means you got a margin call too?


Mr Lennon Hendrix's picture

There will be a day when the Fiat Ponzi crumbles.  Debt/money has had little recourse considering it has zero value.  Debt/money is a ficticious creation of sore minds.  It is a way to leverage wealth from the base of the society to very few.

Along the way promises were made, and quiteness was kept.  People went about buying and spending, hoping to repay their loans with future earnings reamed of.  But these days were far out of reality.  Now we see that leverage makes no distiction among its prey.  We see that when the House comes down, those praying in it will be trapped.

Those holding real assets are far from this mess.  Those who have their ability are above the clouds.  Humanity creates, and it destroys.  This is a time of destruction.  The creation will come from its ashes.

JW n FL's picture


1. You can be "First".

2. You can be "Smarter"

3. or.. You can "Cheat".


Banks are open until 12 noon tomorrow unless you have a private banker and a branch that will open for you, ala' Northern Trust.


If you dont believe in tangibles or in backwardation.. unless this gets called off.. you will be a firm believer by 12 noon Monday when the Markets Open Late and still are diving past 7,000.. from a close today of 12,000(ish).


There is not enough energy to go around.. 300% +++ in monetary base growth.. and the World markets are still going to fast? and need to be slowed?

I dont know, I am just spit balling with the rest of you.

God Bless and Good Luck!


FrankDrakman's picture

What, did you watch the movie "Margin Call" last night?

Jeremy Irons does not cheat, and Kevin Spacey will think he's a great guy while he rapes every client the firm has. And life imitates art.

French Frog's picture

Will it matter that much if it's only for "performance bonds"?

redpill's picture

In CME-speak I believe that's a generic term referring to collatoral margin requirements, so if true would seem to be a fairly significant event.

But I tend to think we don't see the whole story here, I can't believe CME would "go rogue" with something that would cause a major disruption in financial markets like this.

tmosley's picture

These are the people in charge of our commodities exchanges.

The incompetence is simply STUNNING.  Taking on more risk in this environment is nothing short of insanity.

In any event, this is good.  No collapse Monday.

trav7777's picture

another day, another mosely-claven prediction falls flat on its face

Max Fischer's picture



So after 75,000 views and 800+ comments, all of this was for.... nothing?


monkeyboy's picture

Weird. Just watched the film last night.

ToNYC's picture

With the well-known Jungle compensation plan: "You Eat What You

Kill", are ther many wonders why evisceration of assets is a fine art. Smart monkeys move on while the patriarcal baboons deeply-rooted in their entitlement by hierarchy try to buy love with the merde at hand.

trav7777's picture

every dollar owed relies on another borrower to borrow.  This is the problem in the face of aggregate contraction.

The issue we face as plebes is that the BANKS are the sole conduit of money into the economy.  So, when the economy grew, the banks prospered.  As the Bernank prints, the banks prosper.

This is the point of the deflationists, credit becomes artificially scarce not because of individual borrowers' inability to repay but the fact that there don't exist the MORE borrowers in the future who will have to borrow the interest owed.  It's a systemic problem.  It's that proverbial someone else, the lack of growth, that prevents the system from functioning.

So, everyone has to repay, everyone has to put everything up front, everything real and in existence now trades at a premium.  The system can't grow to pay today's interest, so nobody will lend even if the individual interest or venture lent to would be viable.  The system in a state of contraction makes the credit growth necessary for a compounding interest system untenable, therefore lending ceases.

Today's principal P becomes tomorrow's principal P + interest I.  The system necessarily requires someone to borrow (request the creation of money) more at every future point time T+1.  It always has to grow.  There always must be more credit created.  A loan today can't be created, exist, be viable, be repaid, without that.

zhandax's picture

Then let the fucker collapse.  Except it won't happen next week because our inimitable central banker has decided he is both the party to request the creation of money at every T+1 and the creator of that money and he is still running loose.

Madcow's picture

yes exactly - unless 

- they unveil a new fiat pyramid 10x the size of the old one

- they let gold go to 20K to refinance the old system

- a technology comes along to economically harvest heavy oil and bitumen

or some combination of the above ...  i know you don't believe that last one is possible - but that's really the only way forward. i'm not prepared to live in a mad max deflation.  positive EROI is possible with the right technology breakthrough(s)

Hansel's picture

Yes, it is systemic.  I'll add that one person cannot have money without another person/entity going into debt.  When work is performed no money is added to the system; one person is paid cash and another goes into debt, but the money to cover the interest never existed.

PeterB's picture

No, but beware the leveraged neighbour who can't wait to give it away to save his ass. I'm afraid it was always going to be every man financial entity for himself & let the devil Wall Banks take the hindmost MF Global

Ag Star's picture

I don't think so dude. My pm's resting nicely and still doing better than any stock over the last year.

No counter-party risk--ahhhh,  I'm sleeping real good.  Remind when the last time gold or silver went to zero.

Mr Lennon Hendrix's picture

Zero what?  Dollars?  They can't.  Dollars are leveraged on gold; just ask Bernanke how his 14k tonnes are doing. 

derek_vineyard's picture

First rule of having physical PM:   Do not tell anyone

Second rule:  If you tell, it will be taken.

ToNYC's picture

How do you use something in trade that you can neither show nor tell?

derek_vineyard's picture

You await until you need to trade. Then you will have to change your life and gaurd your valuables and take extreme security measures.  In the meantime STFU.

Like the kid growing the pot plants....if you tell anyone , they will be gone.

ToNYC's picture

When does your army of one sleep when you do deed one with your stash in the midst of real strife?

awkward squad's picture

Same rule applies when you're growing weed in your house.


MsCreant's picture

So where you shacked up theses days?

JPM Hater001's picture

A commodity is a commodity whether you grow it or mine it.  Personally, I prefer to smoke it.

topcallingtroll's picture

Cant wait till I get home today. Got a little sativa sensamilla (sin semilla or "without seeds") waiting for me. Wish I could still find juahacan or acapulco gold. You kids can keep your skunky indicas. Old fashioned sativas, particularly sensamilla wakes you up and clears your mind. I dont like the comatose buzz from indica.

BigDuke6's picture

My sort of chat.

U should come to oz, u'd be impressed with the resources here...

mayhem_korner's picture

the system is no longer "creditworthy."


The system was never creditworthy.  Returns (interest) aren't high enough to cover quantum default risk plus a profit.  So it's a losing battle from the get go.  Problem is, when those "prosperous" 4-6 year episodes take hold, the illusion of lending profitably becomes a contagion, and the system levers up (i.e., fractional reserve lending, investing on margin, etc.).  No one "learns" because the purveyers of each wave are either promoted up or kicked out, and the next wave of creditor enthusiasts repeat the pattern, only with new tools and more confidence.

But as you say, every dollar of debt is owed and must be resolved on someone's balance sheet.

The weight of the unrepayable debt is so ugly I don't think even those that know what's happening can aptly imagine the crushing pain that is coming.

trav7777's picture

the system was creditworthy as long as the aggregate economy was growing

GenX Investor's picture

It's called Debt Deflation bitchez!!!

JustObserving's picture

CME lists margin for 3186 products.  How can they increase margin for all products simultaneously?  - this will require trillions.

Something does not compute


bernorange's picture

Maybe someone copy & pasted all the numbers from one column into the other by accident.  /fat finger

Smiddywesson's picture

Yes, but the real story is the system is so complex and so close to the edge of the cliff because of can kicking that some fat finger can come along and push it over the edge.  Then, like the assassination of Archduke Ferdinand, everybody will say, "how did it all happen because of this?" when the real answer is it was just time for the lemmings to jump.

TheSilverJournal's picture

Is it time for the dollar collapse now? Or do we have months? Or Years?...

My vote is in the months category.

Smiddywesson's picture

My guess was Jan or Feb of 2012, but I don't know either, I'm just guessing how many jellybeans are in the jar.

ToNYC's picture

How far is KreditAnstalt from Erste Bank and Dexia besides rhyming in time and fashion?