Friday, November 4, 2011

Chicago Mercantile Exchange Tightened Margin Requirements

Zerohedge: CME Goes To Margin DefCon 1: Makes Maintenance Margin Equal To Initial For... Everything!?: 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.
Those billions in additional capital also represent billions of dollars worth of demand on the CME. By regulatory fiat, that demand has just evaporated which implies that commodity prices will fall.

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