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CME Goes To Margin DefCon 1: Makes Maintenance Margin Equal To Initial For... Everyth
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CME Goes To Margin DefCon 1: Makes Maintenance Margin Equal To Initial For... Everyth

  #1 (permalink)
Quick Summary
CME Goes To Margin DefCon 1: Makes Maintenance Margin Equal To Initial For... Everyth

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):

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  #2 (permalink)
Market Wizard
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this is big, maybe they got hacked?

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Yeah... just wow!

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interesting

curious to see what my day margins will be Monday.

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rwhitt View Post
curious to see what my day margins will be Monday.

Day margins are set by your broker. They may or may not raise them.

I don't think any of them will raise them except IB.

Math. A gateway drug to reality.
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  #7 (permalink)
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This issue has been a hot topic since it's release, the CME just posted an update to clarify



CME did not increase the maintenance margin requirement but lowered the initial margin requirement.

CME Group Clarifies Maintenance Margin Ratios; Exchange to Reduce Initial Margin Ratio to 1.00


"This is a short term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event."

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CME Group
11-400

TO: Clearing Member Firms

FROM: CME Clearing

DATE: November 5, 2011

RE: CME Group Clarifies Maintenance Margin Ratios Exchange to Reduce Initial Margin Ratio to 1.00

CME Group today is clarifying its notice to clearing firms regarding margins. In light of the issues customers transferring out of MF Global are facing, while still maintaining appropriate risk management protections for the market, CME Clearing is setting the "initial" margin upcharge at zero. This upcharge is normally applied to customer accounts when they are receiving a margin call.

The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them.

Yesterday, CME Group successfully transferred MF Global customer positions to a new clearing member with part, but not all, of their funds, as approved by the bankruptcy trustee and the court. By reducing the initial margin “ratio” to 1.00, we ensure that margin calls that are issued to these transferred MF Global customers will be limited to bringing their accounts into compliance with the lower, “maintenance” margin levels. Maintenance margins are set to provide appropriate risk management coverage. Initial margins are set to provide an additional buffer against future losses in the account. This is a short term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event.

We apologize for any confusion our initial advisory may have created.

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Well ZeroHedge always is far reaching in its hysteria, but I have to admit an extra 2-3 seconds of typing on the original CME posted document would have prevented the panic.

Mike

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Well, you never know for sure. Zerohedge has hit the truth more than not...

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