Trader Dan's latest: CME margin hikes

"If I am reading the communique from the exchange correctly, the margin requirements for ALL CME products is being raised by hiking the MAINTENANCE MARGIN requirements to the SAME LEVEL as INITIAL MARGIN requirements, effective as of the opening of trading Sunday evening/Monday morning, November7. The changes were implemented as of the close of trading Friday, November 4th ..."



He will be able to shed a little light on possible outcomes as he always does. At least he will keep a few of us off the ledge come Sunday night.

Best to All,
Murph I

I imagine this is because they plan to finish moving all the MF Global accounts this weekend.

Not sure if they will fully liquidate accounts that can't make the margin requirements given only 60% of funds will be released or they will be allowed to reduce positions accordingly.

Even if the accounts that are fully leveraged can come up with the financing... there will be a ton of repositioning given that so many traders have been locked up over the past week.

I am not making a call for something crazy to happen, but do think this creates the potential for some great scalping opportunities for the nimble.

Would love to hear Mary, Gerald or any other seasoned futures or floor traders take on all this. has reported that the COMEX is raising the maintenance margin to 100% of the initial spec margin. It is unclear what the exact impact will be, but some are predicting chaos on Monday:

“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.”

Many believe this move by the CME is likely to lead to another huge crash in prices for both gold and silver. We will find out soon enough, but I will not be selling into any panic. Only those that are gambling on margin and speculating will be hurt by this margin increase. Real precious metal investors will simply use the dip as another opportunity to convert fiat dollars into real money at discount prices.

Jay Gillespie

There are some (a few hundred or thousand?)highly leveraged purley speculative MF accounts that the other firms do NOT WANT to take on due to the associated risk and I'm sure the CME doesn't want to back stop them either. So how do you get rid of them? It is a force out. The unfortunate thing depending on how this plays out is the good always pay for the bad. It will be interesting at minimum if they do roll all accounts at once and are ready at open on Monday and although am not sure it will get totally out of control I think we can all expect exceptional volume. The other wrinkle is that they are doing this as a mass sweep using minimal transferring rights paperwork, but it is the IT and customer support side that will take time to catch up. I have a friend with a commodity hedging business -- several hundred customers globally from dairy, hog, grain farmers to food and beer companies, that has IT working through the weekend to facilitate the switch. Doubtful they have it done seamlessly by Monday morning -- web server, database, account access, etc. It COULD be a real CF!

we'll see.

I started to follow up this morning with the way the CME and regulators have handled this situation, but was sidetracked by the needs of my kids. As of Saturday i couldn't tell that the sweep had been made, but 6am Sunday showed my positions with mf had been liquidated. Now i have flurry of email from both mf and my new clearing firm RJO. I can't tell for sure, because it has never happened to me before, but based on my position statement from RJO I have a margin deficit and will be called. Okay, just to set the record straight, i am not 100% sure this is the case, but that is what it looks like right now based on the statement I received at 6pm cst. They appear to have rolled my positions as they were, but not even the initial margin and maintenance monies to cover( both showing the same amounts as before without change), which is why it appears I am showing a deficit, even though i have over 10x the cash requirements to cover in the mf account. I was under the impression they were transfering 60% of funds until this weekend when i read minimum position covering funds up to 60% only and no excess cash. Could they have swept less than the minimum monies required even if well below the 60% of funds stated early on in the process?? The good news is that I closed a Lind-Waldock account about a month ago (TG!!) in an effort to consolidate accounts and did not place the cash back with mf. And, I arranged to have some extra cash on hand last week. Again, I am not 100% and find it VERY HARD TO BELEIVE, but that is that way it appears as of right now. Let's see if I am reading this correctly, or not, and how this all plays out in the morning.

ps gold is trading up strongly as i type: )

good luck all!

Thanks for the update Bill.

I don't quite understand how lowering the margin/maintaince limits will help if it is only temperary and money/cash is still lost. Sooner or later they will go back up and margin calls will come down the pipe with less cash to cover.

In your case it almost sounds like they are taking advantage of the lower rates so they don't have to transfer more cash, at least right now.

Man, if this doesn't sound like a Bear Sterns moment with more to come.

Good luck Bill!

Good life

Not clear, to me at least, why they are handling it this way. The missing monies(??) represent less than 12% of customer funds that were supposed to be held in seg accounts. Simple back of the envelope math says that they should easily be able to make customers whole in time (MF clearly has other assets to back a 600m shortfall), so why not release 60%+ now and sort the rest out later?? This is a little red flagish imo and I find it fascinating that JPM can buy a first lien for only 8m?!? One other caveat is that more than a few have been able to review net overall positions of the accounts in question. Thank god the markets have been relatively quiet and are not experiencing limit moves while many are handcuffed!!

I have a great trading story(not mine)to share when all is over(don't ask now!) -- endig tbd.

FWIW - After talking to myself for an hour or so decided to fund up the new account. Who said savers are screwed? I may just double down given the right set up... fuck Corzine and his ilk!

a lack of liquidity in the system...some think it will take a few days to work out, a la Lehman Bros. which collapsed 5 days after the first inklings of a problem.

Personally, I have an account with an asset manager doing covered calls...not sure how THAT is going to work out! Not sure how it all works...they are not playing options in speculative mode, I don't think.
I saw the list at Zero Hedge and it doesn't look like it involves stocks at all, but who knows if there will be any spillover effects???


Related News:

U.S. ·

Want to save this for later? Add it to your Queue!
CME Temporarily Reduces Margin Requirement to Ease MF Global Account Shift
By Matthew Leising - Nov 5, 2011 2:23 PM ET


CME Group Inc. (CME) is reducing the initial margin required to back futures trades to ease the bulk transfer of accounts held by MF Global Holdings Inc. customers.

“This is a short-term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event,” the Chicago-based exchange owner said in an e-mailed statement today.

MF Global, the holding company for the broker-dealer run by former Goldman Sachs Group Inc. Co-Chairman Jon Corzine, filed for bankruptcy protection on Oct. 31, after making bets on European sovereign debt. Its broker-dealer unit, MF Global Inc., faces liquidation.

The firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed in U.S. Bankruptcy Court in Manhattan.

CME Group, the world’s largest futures exchange, is responsible for auditing clearing members such as MF Global under its authority as a self-regulating organization. It said on Nov. 4 it was in the process of transferring about 15,000 MF Global customer positions. Under a court order in the bankruptcy case, no funds or collateral not backing futures positions can be transferred to another futures broker.

To contact the reporter on this story: Matthew Leising in New York at

... is obsessed with margins. Why? I don't know. Surely HE isn't big enough to empathize with the zoomies. Look. Zoomies use margin. They ARE the volatility. They are all morons, and thus slaves to their defective black boxes.

Big money doesn't give a flying fuck. Go ahead. Make my day. Wash out the zoomies.

Okay. After THAT screed, here is the deal. Only the super-leveraged chasers of 1% (do the math -- the ONLY reason to be long the exotica involving interest rate moves, THESE days, is to leverage 1% into 15%... good fucking luck).

ALL margin hikes amount to one insignificant fart in a windstorm. Gold is gold. If you are trading credit spreads, 20-1, then be very, very worried.

If you are trading gold, smack your lips, scratch your nuts (or pussies -- whatever you have that gives you pleasure to scratch...), salivate, and JUMP ALL OVER any dips in gold that are created by this buzz. Otherwise, just hold what you have and enjoy the low comedy.

All this bullshit is for paper mongers. You know, those who haven't understood gold in the past, do not understand it now, and SURE as hell will not understand it in the future. Never fear. Gold WILL catch a bid. It's a bull market. Look for recent support to hold. The recent COT reports show NO signs of life from the large speculator gold bears. I am getting bored keeping the data. But the grunt work has to be done, so I still keep it. Sigh.

LIsten. Gold will NOT change trend until the large speculator bears MAKE it happen. Don't hold your breath.

Sigh. Must I be redundant? Stay small, buy the dips, book a few profits on the rallies ... and do it again.

Do I HAVE keep reminding you about the Lady from Spain???? Okay. One more time.

There once was a Lady from Spain
Who wanted to do it again,
So she did it again,
And again and again,
And again, and again, and again.

Be the Lady from Spain. Buy low, sell high. Do NOT expect to be precisely exact. "Approximate" will make you a LOT of money. This market ain't no trained seal. Surprises will abound. If they create dips, buy 'em. If they create rallies, sell 'em.

Here is a final thought, for all you logicians out there. The BIGGEST SINGLE MOVER behind ANY long term bull trend is the instinctive and planned determination of smart money to steal from the fools. That is why trends are good. Think of strong up-trends as golden geese who lay INFINITE dozens of golden eggs. As long as the big money is long, only those who buy high and sell low will lose money. Unfortunately, that is the majority. YOU buy low and sell high. If you are small enough to sleep through the bullshit (the raisings of margin requirements having CONSISTENTLY proven to be, over the past, the LARGEST turds -- check it out! EVERY SINGLE TIME they raise margin requirements for gold, gold goes UP), just buy the dips and book at least a LITTLE cash on the rallies.

There is NOTHING in the COT report that even REMOTELY suggests that the large speculator bears are taking control of the gold markets. Margin requirements or no. Remember, when they raise margin requirements, the SHORTS have to pony up more cash, too, or THEY get sent home. Zero sum.

I hope this helps. Do NOT look for anything to the downside in gold (other than the usual 1%-2% selloffs) on Monday.

Good luck, and happy trails.

From Trader Dan blog Nov. 5, 2011:


I would like to publicly express my appreciation for my pal JB Slear, a dedicated commodity futures broker who operates Fort Wealth Trading for putting in yeoman's hours, over a weekend I might add, to help track down what is occuring with this CME margin changes.

Here is the official clarification from the CME Group where they state that instead of raising maintenance margin levels to initial margin levels, they are doing the opposite, and instead LOWERING initial margin requirements to maintenance levels.

Also, thanks to "KId Dynamite" for posting his view earlier that this is what they were doing.

DATE: Saturday, November, 5, 2011

NOTICE # : 11-400

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



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

In the immortal words of Roseanne Rosannadanna ...

"Never mind."

Can you believe this bullshit? C'mon, Trader Dan. Man up and admit you don't know shit. Just keep pimpin' yo' "News"-letter and pretending that you are, somehow, in the know. When, in reality, you are just another shmoo tryin' to be a big-time operator, layin' eggs all over the place.

Expect the usual -- up, down, and sideways... but with the bull still in charge when the smoke clears.

Good luck, all.


Jay Gillespie

Gold up 5 bucks in the overseas spot market!



* Join and receive the Two Fold Formula guide to picking stocks and combine tested fundamental valuation metrics with technical analysis.

*Align yourself with the big trends of the stock market and be alerted when these trends change.

*Receive free updates when we see an investment opportunity in an emerging sector before the crowd gets in.