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Fed To Hike Current Coupon MBS Margins
In a stunning move of fiscal prudence (cough CME cough), the Federal Reserve said it will hike (not lower) margins on current coupon MBS with its 2221 Primary Dealers "in a move that would be aimed at securing an extra layer of protection against settlement risks with its counterparties" the Wall Street Journal reported. But, but, the CME lowered margins in a time of "major market upheaval" to raid said margins of 40% of all equity protect itself clients: how can the Fed do something as radical as actually protecting investors by hiking margins? Surely this is some travesty. Apparently not: the WSJ explains: "The measure would be a blow to dealers as it would raise their trading costs. But the move could provide an extra layer of protection for the Fed against the risk that a dealer bank goes belly up. That risk became apparent with the collapse of MF Global Holdings Ltd., an investment bank that until its bankruptcy filing two weeks ago was listed as a primary dealer." But, but, the CME is also exposed to lack of liquidity among its client base: shouldn't it also be hiking margins to protect everyone else, not just help itself to millions of margin dollars from orphaned onboarded MF accounts? And speaking of, is the CME still keeping initial margins low? Wasn't it just a "temporary measure" - surely all MF Global accounts have been properly raided analyzed by the CME at this point and there is nothing else to transfer over. We are confident the CME will hike initial margins any. second. now. You know: to protect everyone else and stuff.
More on why the Fed is now apparently more prudent than the Chicago exchange from WSJ:
Several people familiar with the matter said the central bank conveyed the idea during a conference call earlier Tuesday with the primary dealers—a group that trades directly with the Fed and serves as the central bank's major counterparty in monetary policy operations.
A transaction in so-called current coupon MBS, the most liquid securities in that market and the target of the Fed's policy-driven buying, is typically settled a month forward. Under this arrangement, known as a forward MBS agreement, the securities are delivered one month after the transaction takes place. That is where the counterparty risk arises for the Fed. Over that time, the value of the MBS can fluctuate and if the price were to rise, the central bank would have to pay a higher cost to replace them if a dealer failed to make delivery.
The requirement may begin next Monday, according to the people familiar with the matter. One person said the Fed may pose a 2.5% initial margin on the dollar amount of the mortgage-backed securities transactions from the dealers. That means a dealer may need to put up $25 million in cash collateral for an MBS transaction of $1 billion.
"The Federal Reserve Bank of New York informed its primary dealers today that it will require dealers to margin against their outstanding agency MBS forward transactions with the NY Fed," said a New York Fed representative in an emailed statement Tuesday afternoon. "Dealers are required to post collateral in a number of other types of operations with the NY Fed."
So the next time someone says Initial-Maintenance margin = 1 in a time of unprecedented market stress, just ask the Fed what that means, and skip the CME... At least if you want to keep your money.
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Does an internship at CME get you a PhD in criminality?
This raiding of MF customer accounts is an ungodly amount of theft.
How this is not on 24-7 on the MSM is beyond...oh wait,,,nevermind.
Raiding peoples bank accounts happens to those that warned against such shenanigans. When people realize what this means, there will be a run on the banks for sure.
http://www.infowars.com/gerald-celentes-gold-account-was-emptied-by-mf-g...
Meanwhile in other news,
Italy won't issue preliminary Q3 GDP data -stats agencysrc: http://www.reuters.com/article/2011/11/16/italy-gdp-idUSL5E7MG26L20111116
lmao. It gets more Orwellian each and every day. If you forge data, you can control perception, fake reality, and control history.
"lmao. It gets more Orwellian each and every day."
Yes, now get back on your fucking treadmill, the state will inform you of precisely what is or isn't important when it is necessary to do so.
Knowledge is Power
Ignorance is Strength
War is Peace
And the 'you just can't make this stuff up' hits keep coming.
I need to completely disconnect the normalcy bias in my human nature...it won't do me any good where we're going.
Yes, we are nearing the end of this Three Card Monte game, and then everyone will say, nobody saw it coming. Rules of thumb and definitions of "normal" won't apply when we reach the end of the road, not the end of the world, just the end of the current financial and monetary system. Unfortuantely, it's a global system, but then again, misery loves company.
This is comical. Raise margins to 100%, the genie is out of the bottle and no one knows what paper or financial fucknut to trust. Got physical?
FYI - I have two business partners in France and both have confirmed that banks have put capital controls in place regarding the amount of money you can withdraw or transfer. Hedge accordingly.
Those of us in the Precious Metals world have been saying for years that the CME is a criminal organisation disguised as an exchange.
Good that the rest of the world has finally caught up with this 'News'.
Will anything be done about it? Hahahahahahahahaha!
No.
The will be investigations. There will be hearings. There may be whistleblowers. There will be private court actions. None of this will matter. Too much money to be made bilking the public for 'Laws' and stuff to apply here.
Crime-ex indeed. To that I say "John Corzine? Meet Jerry Sandusky! You two are gonna be BEST friends now!"
2221
My favorite line. Nice writing.
Let me get this straight. If we take the cockroach theory to MF Global, then most of the primary dealers are comingling. So to meet the new margin, the remaining primary dealers will need to use more client money to "balance" the books?
Yesssss. The good side is we don't need to wait for the Judge to "get our money back" cuz..."when you steal from the Judge he's the one ordering the hit."
Is it just me, or is ZH really, really, really slow to load the last few days? My ISP both at home and work is Time Warner Cable, but I use both TWC and OpenDNS DNS servers, so I'm not sure it's a DNS issue.
Any other TWC customers seeing the same thing?
FYI - Loads just fine on my iPhone via Verzion.
Yes
I also use TWC and since I began to see a ad for Disney florida residents, It takes a little longer before I can scroll or move.
Last time we had a margin hike (remember, last week, on Italian debt from Clearnet), well, that did not go so well... cough cough
We have to get through option manipulation first. Oops, meant expiration.
http://soldiersforthecause.org/2011/11/16/anonymous-calls-for-digital-de...
LOL...Anonymous. I'm still waiting for all their promises on taking out the exchange if Bernanke didn't quit. What ever happened to that?
Which one you want "taken out" first?
It happens that hacking a network REQUIRES to connect physically to the network. And...
*deleted, dangerous informationz*
Who haz the datasheets and the connectivity ownz the system. That's all.
OK - I will throw out a hypothesis. MF Global was a set up. Hiking the margins pulls financial crack out of the mix. The junkies go into withdrawal. Markets tank. Dollar reverses course (can't have it too strong of course). Politicians are forced to mandate the Fed initiate QE3. Attention shifts from EU to US. The next cycle begins.
Not bad but...do you know when?!?! We all know the next prez will have to make them 401Ks dripp with dough...it's one shot only...! Buying leaps may be the answer, eh?!
Trading Joe brought up a good point I'd like to stress. That 10% penalty for early withdrawal from a retirement account is likely to change, without warning to a higher number, even 100%, like you could be prevented from accessing the funds. I'm surprised they haven't already done it.
Well, you make a point. I agree that the markets need to tank before anything happens. Why? Because the Fed boxed itself in by using the stock market as THE indicator of how the economy is doing.
If that very visible indicator shows no signs of distress, I don't see how it would be even possible to justify to the politicians and the masses.
You are ignoring the ability of TPTB to initiate conflicts that lead to wars. Negociations will continue and war is simply negociation by other means.
Centerline has a point close to what I have been thinking lately. The Oct. run up might be a precurser to a market drop intended to take some of the steam out of the price of PMs. Obviously, they want the stock market to rise, but when faced with pressure in PMs, they might be willing to give up some of the ground they made in Oct. by letting equities slide and then use some margin hikes in PMs. This would negate the seasonal buying everyone expects in gold. Santa may bring us another good buying opportunity.
Well, for once, the rich got fuckend themseleves, through "margin calls" :)))))! I wonder what they'll do now?!?! Gather an amry of attroneys, lay low, what now?!?!
This is why I never trade on margin! Too much exposure to croocks! Imagine the legal cost to go get that money back! Good Luck!
You need to remove the oven mitt before typing, sir.
I am aware of my typos! But thanks anyways!
John Corzine. "the man who was so afraid of Hank Paulson he...
Fucking Excellent! More transparency of the criminal institution known as the Federal Reserve. Systematically digging its grave. It's five o'clock somewhere. Cheers! and good morning.
Apologies in advance for being a complete rookie on precious metals and will try not to sound foolish. I'm making my first purchase today with plans to add to holdings. I've only traded equities and equity options. Anyway, I've been thinking that increased margin requirements should drive up the price of precious metals since it would seem they are the ideal collateral - supported by the suggestion on this board that currencies will collapse. But gold prices dropped today. Is my logic flawed? Is there a disconnect between the margin news and gold prices? Otherwise?
Increased margin requirements in precious metals depress PM prices.
Falling stock prices also tend to depress PM prices because people liquidate what shows them a profit to meet margin calls in their equities. Hence, my guess that the Oct. run up was intended to give TPTB some room to manuever in the event that PM prices rocketed up on the European crisis. Since that hasn't happened, they still have lots of room to attack stocks to assist in driving down PM prices if needed.
Not my call, but if I were you I would keep my powder dry for another buying opportunity. The problem is this baby could go nuclear at any time, without warning. So the best move, IMO, is to establish a small "end of the world" position in physical and keep the bulk of your money in cash, then dollar cost average until that big buying opportunity presents itself. Stocks prices are still high, and there's plenty of margin left in gold and silver to hike, so you know it's going to happen.
Thank you for the thoughtful reply.
It should be clear to all that since MF Global was a Fed Primary Dealer who could borrow from the Fed at 0.25% and loan to the Treasury at 3%, for, in effect, unlimited free money. They would never be forced to go bankrupt unless of course the banking cabal could profit. And profit they did, big time.
MF Global was in possession of something that JP Morgan wanted: Silver Depository Receipts! Never mind that those receipts actually belonged to MF Global customers. This was an easy obstacle to overcome, we discovered.
Why did JP Morgan need these receipts? JP Morgan sold thousands of Silver Depository Receipts for Silver they do not actually have. They absolutely could not let those customers actually take delivery of the Silver. It’s not there! JP Morgan could not allow this shortage to be discovered. That would destroy them. When you are fighting for your survival, you do desperate things.
Did you notice how JP Morgan benevolently stepped in very quickly with a loan offer stipulating MF Global assets as collateral where JP Morgan’s claim would be superior to all other claims?
I suspect JP Morgan had taken delivery of MF Global customer property before they even offered the loan. The terms of the loan were intended to make the theft “legal” after the fact.
I am sure Corzine got a very sweet under the table deal from JP. These guys have absolutely no morals and absolutely no shame. They deserve much worse than prison.
All I can says is that George Carlin was rarely wrong. The 3 types of people are clearly visible and you don't a whole day or need a pad of paper and a pen to write them all down.
The folks that think they are in charge are stupid, full of shit or fucking nuts. And damn if they aren't all 3.