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ICE Follows In CME Footsteps, Lowers All Initial Margins
And so another exchange decides to follow in the CME's (clarified) footsteps, and lowers Initial Margins for all in order to facilitate the onboarding of just clients with orphan MF exposure. Probably more important is that the ICE demonstrates how this can be done in a way that does not generate speculation and confusion, and avoids follow up clarifications, due to the counterintuitive nature of increasing initial leverage in the aftermath of an exchange filing bankruptcy due to excess leverage. And as usual, the real question is what would happen in the counterfactual? Would the market really tumble and would liquidations truly be pervasive on Monday is the contract transfer price is not lowered? Is liquidity in the market (and hence leverage) really that low (high)?
Full statement (source):
Exchange Actions Re: MF Global Inc.
Effective immediately, ICE Futures U.S. is temporarily lowering the Initial Margin rate for all Speculative accounts to a level equal to the Maintenance Margin rate for all contracts. The Initial Margin rate for hedgers already is the same as the Maintenance Margin rate.
This action is being taken to mute the impact of the transfer of accounts from MF Global Inc. to other clearing members that was effected overnight, and thereby support the integrity of Exchange markets.
h/t Janet Tavakoli
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Good points, but I doubt the reversal will be well timed. Sorry about your situation with E*Trade - hope it works out.
Thanks for your concern, but the good news is that E-trade is my EX-broker. I dumped them in 2010, but I still get letters from them. This time I'm glad to hear from them since it tells me that dumping them was a good decision...
Since money disappears from deposits at TBTF banks, the banksters will need to liquidate assets in order to keep their liquidity ratios. They are all panicking about massive sell offs, and lower the margin ratios using any excuse. I don't think it is about the MF Global.
If people transfered really large sums, all hell will break loose. I can imagine that most of liquidations will be on the stock market.
This has disaster written all over it. The consequences of not taking this action must be worse than actually doing it. I don't expect this to survive the credit crunch. The Greek government has a better shelf life than this scam.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
http://www.bloomberg.com/news/2011-11-04/how-populist-outrage-gave-birth-to-the-federal-reserve-echoes.html
I would take ZH anytime over the crap peddled by MSM.
you guys were all circle jerking thinking "rasing maintenance to initial" would crash the market..
so now what? YM up 777points?
non-event
just suppose some other event happens before opening, contrary to the cme & ice current position - lets say a? then what,...
Correlation between Adjustment Decisions of Index Futures Margin and
Market Factors
http://www.aicit.org/jcit/ppl/%20JCIT_MAY_16.pdf
Past studies have seldom discussed market factors related to margin adjustments, and have never
explored the quantification of futures leverage, or whether the margin changed after small or great
intraday changes of historical volatility. This paper discusses the correlation between market factors
and margin adjustment decisions. In addition, stock markets discussed in past literature may have
differences due to different long and short positions (futures are financial derivatives of stocks indices);
thus market factors affecting margin adjustment decisions may change against the long and short
positions, which should be discussed. The purposes of this study are as follows:
1. To discuss the correlation between margin adjustment decisions and market factors; and whether
leverage changes by the TFE have the function of increasing or reducing market trading.
2. To discuss the effects of long and short market positions on the contingency of margin adjustment
decisions.
3. To discuss whether increases and reductions of margins by the TFE have influence on investor
decisions and market situations.
4. Stock index futures are derivative commodities of spots. Hence, whether margin changes are
related to relative price or price differences between futures and spots is discussed.
5. Conclusions and Suggestions
This study found that the factors affecting margin adjustment decisions made by the TFE include
“leverage”, “intraday price”, and “historical price”. In long and short positions, the relative price of,
and relative price difference between, futures and spots may also change. When “intraday price” was
high, TFE would increase the margin level in order to avoid increasing default risks; while if leverage
was too low, the TFE might also increase margins in order to maintain leverage. Reducing margins
stimulates market; therefore, the probability of a reduced margin would be higher when historical
prices are too low, intraday prices of futures are smaller than intraday prices of spots, and price
differences between futures and spots are positive. The above conclusions are consistent with the
results of past studies.
This study suggested that in the short position, leverage and historical prices of futures were related
to increased margins, as the TFE hoped to reduce defaults and maintain leverage. In the long position,
the smaller the intraday price, the smaller the historical price, and the greater the probability of a
reduced margin. When both the intraday and the historical price of futures were greater than the spots,
or the price between futures and spots was positive, the probability of a margin reduction was higher.
This study found that the time effect was negatively related to increasing margins, and thus, the
probability of an increased margin was lower; moreover, it was negatively related to margin reducing,
illustrating that the TFE intended to keep margin levels down.
This study also found that margin adjustments would not change the trends of the return rates of
futures or spot markets, and margin reducing would result in the cumulative return rates of futures
market to drop more quickly. Margin reducing can stimulate historical prices, thus, the TFE margin
reductions could stimulate the market; while after an increased margin, relative price was more
convergent, with moderate back spreading; however, the relative price difference widened, and
historical price of futures and spots increased upon a margin reduction. As references for investors,
intraday price has smaller changes after a margin adjustment, which has a greater impact on investors
that conduct intraday trading in futures.
MOOD of ZeroHedge readers gyrates on greater and more frequent scale than financial markets. Funny thing it's about an event that might or might not happened in near future.
We might have a crash on Monday or not, or it might happaned on Tuesday, or we might have a PM rally, worring about it two days before when markets are closed and you can't change your positions makes no sense.
DIDN'T SMART MAN SAID WE CAN"T PREDICT THE FUTURE!
#Occupy Oakland
by oakland trib writers julia prodis sukek & cecily burt (thurs, nov 3)
"In a powerful and mostly peaceful show of force against corporate America, thousands of demonstrators Wednesday took to the streets of downtown Oakland, shouting down "capitalism run amok" and shutting down banks, businesses and the fifth busiest port in the country.
"Teachers walked out of classrooms. Unemployed workers took to megaphones. Parents with babies in strollers joined more than 5,000 others who marched a mile to the Port of Oakland and blocked all the gates.
"Wednesday's massive general strike, the biggest in more than 65 years in Oakland, effectively brought the city to a standstill, a historic show of action weeks weeks after the Occupy movement spawned on Wall Street. And in great contrast to last week's widely televised violent clashes, police for the most part stood by and, in some cases, shook hands with demonstrators.
" The eyes of the world are on our city," said activist Angela Davis, a UC Santa Cruz professor and a former Black Panther..."
Thanks, Slewie,
I'm still mulling over the EAS stuff above and wondering what TPTB could do with 3 1/2 minutes on an average Wednesday-----------------------
The whole country without MSM for 210 seconds?
Have we tested those rumored crowd control weapons yet?
Not a conspiracy guy---a believer that the dots can be connected in more than two dimensions though we only think in two---but-------------------
sometimes even I wonder about coincidences om
90 seconds of Big Sis introducing Emmanuel, followed by the Two Minutes Hate.
Things are going as planned?
Iran has nuclear explosive testing facility IAEA has satellite images of weapons site near TehranThis is a repeat of a recent post, I just had to get this out before I explode: MFing assholes ... they should all go jail along with every government employee that had anything to do with regulating this company. And they (SEC, CTFC, etc) need to investigate the practices of every other broker / dealer in how they 'use' customers margin accounts.
I encourage every E-Trade customer to immediately move all their accounts to another firm.
It would appear that JP Morgan does not have MF Global's missing money after all:
http://online.wsj.com/article/SB1000142405297020371620457701989417142287...
Cant miss this one: King World News Saturday, November 5, 2011 - Audio
Bart Chilton http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/11/5_Bart_Chilton.html
Bart Chilton: Commissioner of the United States Commodity Futures Trading Commission (CFTC). Chilton has been a vocal supporter of position limits in commodities markets.
He has worked to expose manipulation in commodities markets and gone on record as wanting to prosecute violations of law, which he believes have taken place in the silver market.
He has served as the Chairman of the CFTC’s Energy and Environmental Markets Advisory Committee (EEMAC).
His career spans 25 years in government service—working on Capitol Hill in the House of Representatives, in the Senate, and serving in the Executive Branch in the Clinton, Bush and Obama Administrations.
I wish him luck. But he's fighting in the heavyweight division. His opponents will not go down easily.
hard to be confident about the clearing house who orchestrate such flip-flop notices while it manages the largest speculative market humans have ever created...
and let me not say anything about "segregated accounts" ... does anyone believe in those anymore?
And so they load the bomb up with more plutonium and add a bit longer fuse.
That will solve the problem won't it......
Seems to me the exchanges are like offshoots of the fed, enacting a form of monetary policy with these sort of actions.
GOLD TO TEST THE 1,810 LEVEL ON MONDAY..BE READY!!
Wrong
As usual, Durden completely botched this story. On Friday, he was predicting a complete collapse of the commodity markets. It turns out that he was wrong.
"mute the impact of the transfer of accounts"
Is this a form of mark-to-model accounting?
Like a bank failure, even though MF Global went belly up on Monday the personal accounts were held in limbo until this weekend. Now, these accounts have been split up among the 20 remaining primary dealers.
Just as these were established accounts at MF, they are new accounts elsewhere and thus the ability to keep the positions together makes sense.
It's 9:27 pm Sunday Night, November 6, 2011
The S&P 500 futures are down a mere 0.09% after opening up by about the same small amount. Crude Oil Futures are up .66%. The early indication are that we are not yet in a meltdown caused by CME actions.
If we hold til Monday afternoon, we can presume any forthcoming meltdowns will be due to other factors than the CME action. It usually doesn't take more than a day for this sort of CME action to have an effect. With such a historic across-the-board margin change I would have actually suspected huge volatility at the open. Instead, it looks like a typical Sunday Night market opening.