New Silver margin requirements

Justacommeman

What time did they announce the new higher requirements? I got like ten texts about this about 45 minutes ago. Without looking I knew silver would be hit . Wow, hit it was. Just walked in the door from a great day with my sister. A newly announced cancer survivor. Perspective. MJ

The Chicago Mercantile Exchange increased the margin requirements for silver futures on Tuesday, a move that comes as both silver and gold have continued to hit new highs.

For people trading silver on margin -- or borrowing money to play in the silver market -- the CME (CME: 293.27 ,-2.37 ,-0.80%) will now requires a minimum of $6,500 per contract traded, up from its previous level of $5,000 per contract.

Silver is traded on the CME in 5,000 oz. lots. By lifting the margin requirements by $1,500 per lot, it makes it more difficult for people to speculate in the silver markets.

The CME’s trading requirements do not affect any other metal.

The price of silver and other precious metals have jumped in recent months as speculators bet against a falling dollar and concerns of economic uncertainty.

Because silver is considered a precious metal and considerably cheaper than gold, silver often trades in tandem with gold. And while gold futures have climbed by more than $500 a troy ounce since the beginning of the year, the price of silver has nearly doubled in the same time period as traders have sought a cheaper alternative to gold.

jmski52

and best wishes for her!

I think that they may have been more interested in provoking a market reaction than in curbing speculation on margin. One of their friends wanted out, I think.

Bear

The Government will always modify the rules to accommodate the lads,

when their avarice gets them in trouble. The Hunts know this well.

meluaufeet

CNBC trader was just saying 'kudos to the CME'... happy days.

Took a walk down the beach up over $29.... Got back, and it was under $27...

Cheers to those nimble enough to play both sides today... I was not one of them. At least SDS was green.

Its not like we haven't seen days like this before.

Justacommeman

Updated- Worth the read IMO. MJ

(Kitco News) -- A Chicago Mercantile Exchange (CME) decision to raise maintenance silver margins from $5,000 to $6,500 triggered a sell-off in the precious metals during after-hours trading late Tuesday, analysts said.

“The raise in the silver margins from $5,000 to $6,500, combined with the beginning of a big roll-over from the December to the March contract, makes some people think about taking profits and waiting until the coast cleared,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.

Some traders opted to liquidate positions rather than put up the money for the increased margins, said Tom Pawlicki, analyst with MF Global. “Once the CME came in and raised the margins, that kind of deflated the enthusiasm,” he said.

The impact spilled over into other precious metals.

“The margins were only raised for silver – but under the (Standard Portfolio Analysis of Risk) or SPAN margining system that the CME uses, the possibility of other margin increases propped up,” Gero said.

In after-hours screen trading, December silver was 52.2 cents lower at $26.910 per ounce around 5 p.m. on the Comex division of the New York Mercantile Exchange. December gold fell $10.30 to $1,392.90, and January platinum was $6.90 lower at $1,764.20.

For the 5,000-ounce silver futures contract, the “maintenance” margin for ongoing positions was hiked to $6,500 from $5,000 for both speculators and hedge/members, according to the CME notice sent to members. The new margins will be effective as of the close of business on Wednesday, CME said.

For speculators, the margin for new “initial” positions was hiked to $8,775 from $6,750. For hedge/members, the initial margin increased from $5,000 to $6,500.

So how will the Asian market respond? Gero is waiting to see. Overall, however, Gero said there is no need to panic and the volatility is normal.

“While all this was going, the U.S. dollar got better – so I expect this temporary volatility all through the month of November,” he said,

Gero noted that in November, “we also have option expiration for the metals. So the November expiration is more significant than most expirations for December futures.”

By Daniela Cambone dcambone@kitco.com & Allen Sykora asykora@kitco.com of Kitco News

ksammut

Thanks MJ for posting that.

roadrunner

Thanks for posting that...didn't have a clue. I see they're pulling out the playbook from the 1970's to keep those darn "speculators" in check!

roadrunner

gsa1fan

So? Is this a good or bad thing long term for physical holdings?

MsMorrisine

It's still $5,000 for hedging and members...

Justacommeman

<< <i>It's still $5,000 for hedging and members... >>



My guys closed all their long positions today rather then pony up the extra cash to keep their positions open. They knew that silver would tank harder on this Comex move. My BB was on fire with texts. I'm sure I few hedgies got wedgies today regardless. MJ

MsMorrisine

To receive advanced notification of Performance Bond (margin) changes, through our free automated mailing list, go to http://www.cmegroup.com/newsletter/web2lead/web2sf-old.html and subscribe to the Performance Bond Rates Advisory Notice listserver.

dlimb2

This means the hard stuff is going to be in greater demand!!!!!

MsMorrisine

Here is the notice from CME

As per the normal review of market volatility to ensure adequate collateral coverage, the Chicago Mercantile
Exchange Inc., Clearing House Risk Management staff approved the performance bond requirements for the
following products listed below.
The rates will be effective after the close of business on Wednesday, November 10, 2010.

Justacommeman

<< <i>So? Is this a good or bad thing long term for physical holdings? >>



Take a deep breath and remember why you own physical. IMO, a temporary blip on the radar screen via the paper/ non delivery traders. Folks bailed on the news.End of story. It may reduce speculation a little. Very little. All markets are speculation 365/24/7. This will do nothing to reduce manipulation. MJ

gsa1fan

<< <i>This means the hard stuff is going to be in greater demand!!!!! >>



yup, I'm start on the Wild Turkey 101 very soon!

COINB0Y

Great about your Sister!

I wonder if JP Morgan and Goldman get margin calls?

Justacommeman

<< <i>Great about your Sister!

I wonder if JP Morgan and Goldman get margin calls? >>



Nothing happens without Goldman blessing it. My sister is a blessing. Thank you. MJ

MsMorrisine

<< <i>Here is the notice from CME

As per the normal review of market volatility to ensure adequate collateral coverage, the Chicago Mercantile
Exchange Inc., Clearing House Risk Management staff approved the performance bond requirements for the
following products listed below.
The rates will be effective after the close of business on Wednesday, November 10, 2010. >>




Netscape shows the file was created on: Tuesday, November 09, 2010 1:18:30 PM

So, they likely disseminated it around that time. So traders got notice right about the end of outcry by looking at the charts.

jmski52

Changing the margin requirements on a whim is a blatant form of manipulation that only the exchange gets to play. No different than the stock market. Watch the premiums on physical metals and see what happens next.

piecesofme

Changing the margin requirements on a whim is a blatant form of manipulation that only the exchange gets to play. No different than the stock market.

boy, I couldnt agree with that more.

jmski52

What makes this interesting is that Chilton could've simply placed a limit on the numbers of contracts and short positions that any one entity could own - if he really wanted to discourage speculation.

He only went after the long positions.

Instead of limiting the total number of contracts that can be used to manipulate the market, he opted to limit the ability of people to use leverage to buy long positions that might compete with the large numbers of JPM and GS positions that might be out there, most of which are short positions.

Or am I all wet?

I'm wondering whether or not the Asian markets will tell a different story...

Joflax

There is nothing sinister here!
A few months ago when silver was $20 Per ounce and a 5000 ounce CME contract meant you were controlling $100 000 of silver for $5000 or 5% margin . At $29 dollars an ounce your $5000 controls $145 000 of silver which is only 3.5% and 5% would be $7250.
Why is everone surprised that they raised the margin??

30AnvZ28

<< <i>There is nothing sinister here!
A few months ago when silver was $20 Per ounce and a 5000 ounce CME contract meant you were controlling $100 000 of silver for $5000 or 5% margin . At $29 dollars an ounce your $5000 controls $145 000 of silver which is only 3.5% and 5% would be $7250.
Why is everone surprised that they raised the margin?? >>



Id love to control $100,000 worth of silver at %5. How do I get on THAT market?

jmski52

The net result was a dramatic and immediate liquidation.

"Somebody" wasn't expecting it, and "somebody" got creamed immediately.

MsMorrisine

if it were not for the past actions of individuals, there wouldn't be a need for this type of thing.

Unfortunately, humans are still human. Greed overcomes them, then they self-destruct. They are trying to protect themselves from this type of thing. Fix that and this type of thing can go away.

Of course it could be outright manipulation of the market. You know it's going to have the impact it did. And they did it on a huge up day.

Justacommeman

<< <i>There is nothing sinister here!
A few months ago when silver was $20 Per ounce and a 5000 ounce CME contract meant you were controlling $100 000 of silver for $5000 or 5% margin . At $29 dollars an ounce your $5000 controls $145 000 of silver which is only 3.5% and 5% would be $7250.
Why is everone surprised that they raised the margin?? >>



The sinister part might be the timing. It was announced just as the markets were reversing/tanking ( equities and Treasuries). Silver would be slaughtered with that release for sure as it was already in extreme over bought territory. The sinister part might be why just silver? The sinister might of be, " let's find a way to let JPM wind down some of there short positions". JPM, has been getting murdered. This would be a way out. Why announce this during a trading day? Why not wait until after the market close on Friday just like the considerate Gov does on bank failures?

There are germs of thruth in all three sentences below. MJ

<Some traders opted to liquidate positions rather than put up the money for the increased margins, said Tom Pawlicki, analyst with MF Global. “Once the CME came in and raised the margins, that kind of deflated the enthusiasm,” he said.

The impact spilled over into other precious metals.

“The margins were only raised for silver – but under the (Standard Portfolio Analysis of Risk) or SPAN margining system that the CME uses, the possibility of other margin increases propped up,” Gero said.>

gsa1fan

<< <i>if it were not for the past actions of individuals, there wouldn't be a need for this type of thing.

Unfortunately, humans are still human. Greed overcomes them, then they self-destruct. They are trying to protect themselves from this type of thing. Fix that and this type of thing can go away.

Of course it could be outright manipulation of the market. You know it's going to have the impact it did. And they did it on a huge up day. >>



Smack down; to much $$ leaving the market/stocks possibly? Change the rules to make ETF's/PM's unattractive.

where did I put that roll of tinfoil!

jmski52

It wasn't sinister if there were "circuit breakers" in place and rules about changes in margin requirements already established. I suspect that wasn't the case either.

MsMorrisine

<< <i>

<< <i>There is nothing sinister here!
A few months ago when silver was $20 Per ounce and a 5000 ounce CME contract meant you were controlling $100 000 of silver for $5000 or 5% margin . At $29 dollars an ounce your $5000 controls $145 000 of silver which is only 3.5% and 5% would be $7250.
Why is everone surprised that they raised the margin?? >>



Id love to control $100,000 worth of silver at %5. How do I get on THAT market? >>




commodities broker.

you'd be in for a wild ride.

CaptHenway

God bless your sister!
.
.
I am mindful of how the gummint broke the Hunt Brothers' corner back in 1980.....they raised margin requirements on them.

TD

Joflax

All your points are excellent , and I would not be surprised if they raise margins on the other commodities when they fall below 3.5% , even if it is triggered in the middle of the trading day .

It gave traders a reason/excuse to take profits and prices tanked , I have a feeling that everyone will be sorry that they baled out when silver recovers over the next few days.

Wolf359

<< <i>

<< <i>So? Is this a good or bad thing long term for physical holdings? >>



Take a deep breath and remember why you own physical. IMO, a temporary blip on the radar screen via the paper/ non delivery traders. Folks bailed on the news.End of story. It may reduce speculation a little. Very little. All markets are speculation 365/24/7. This will do nothing to reduce manipulation. MJ >>



No, it just bought Blythe and company a day or two more of stalling hoping for a miracle to prevent the short position from collapsing.

Wolf359

<< <i>

<< <i>There is nothing sinister here!
A few months ago when silver was $20 Per ounce and a 5000 ounce CME contract meant you were controlling $100 000 of silver for $5000 or 5% margin . At $29 dollars an ounce your $5000 controls $145 000 of silver which is only 3.5% and 5% would be $7250.
Why is everone surprised that they raised the margin?? >>



The sinister part might be the timing. It was announced just as the markets were reversing/tanking ( equities and Treasuries). Silver would be slaughtered with that release for sure as it was already in extreme over bought territory. The sinister part might be why just silver? The sinister might of be, " let's find a way to let JPM wind down some of there short positions". JPM, has been getting murdered. This would be a way out. Why announce this during a trading day? Why not wait until after the market close on Friday just like the considerate Gov does on bank failures?

There are germs of thruth in all three sentences below. MJ

<Some traders opted to liquidate positions rather than put up the money for the increased margins, said Tom Pawlicki, analyst with MF Global. “Once the CME came in and raised the margins, that kind of deflated the enthusiasm,” he said.

The impact spilled over into other precious metals.

“The margins were only raised for silver – but under the (Standard Portfolio Analysis of Risk) or SPAN margining system that the CME uses, the possibility of other margin increases propped up,” Gero said.> >>



Timing...yup...very suspicious.

CaptHenway

Forgive me if the answer has already been given above, but could the increase in margin requirements for silver contracts greatly increase the demand for physical silver as an alternative to paper silver?

Remember how the physical silver market diverged from the paper silver market back in late 2008.

Can this happen again?

Will this happen again?

TD

roadrunner

Seems that silver was intentionally run up very strong the last couple of days, and especially this morning. You couldn't have timed the hit any better with a stop watch. What are the odds that the CFTC hit the peak perfectly when they announced? Any chance JPM & Co. got advance notice....naah. That would probably be illegal.

If you wanted to crush the silver market when would you time the hit? As MJ, the timing was incredibly suspicious and wonderfully accurate. I thought the CFTC was trying to look out for the little guy and even the field?

roadrunner

jmski52

Forgive me if the answer has already been given above, but could the increase in margin requirements for silver contracts greatly increase the demand for physical silver as an alternative to paper silver?

Remember how the physical silver market diverged from the paper silver market back in late 2008.

The increase in margin requirements serves to reduce the number of market participants to those who have the means to play in it. Some of the paper players who dropped out today might be inclined to buy physical, but I doubt it. I think that they are the marginal participants (no pun intended) and that they are likely to be gone after being burned once. But I also think that silver will be higher again shortly and that the market action will continue to bring in more regular physical bullion investors who are scared of keeping their $$$s in paper assets any more.

This change in the margin requirements may well serve as a "shot across the bow" of anyone who might think of challenging JPM by going long in the market, but I think that it also means that JPM knows it can't hold out much longer with their massive shorts in place because the silver stocks are dwindling. I think that the short squeeze is in place and getting tighter or we wouldn't have seen this type of shenanigan.

I'm moderately convinced that this type of thrashing around will continue as silver continues to shoot higher. Big gains and then a few more knockdowns in order to scare away the public. I think that game is coming to a close and I don't know if we are going to be looking at restrictions on the ownership of silver "for national security purposes" or not, but I wouldn't put it past them.

I'd dump it into a river bottom before I'd give it to these guys. They're truly a piece of work.

MsMorrisine

<< <i>The increase in margin requirements serves to reduce the number of market participants to those who have the means to play in it. Some of the paper players who dropped out today might be inclined to buy physical, but I doubt it. >>




Agreed.


But I dunno if I would call them marginal players.

cladking

They can rig the markets and break an individual by changing rules but they can't
affect the growing demand for silver in China and the growing demand of millions
of investors world wide.

If people come to see this as a blatant move to crash silver or manipulate the
market lower it will likely have the opposite effect. There is still a close tie be-
tween silver= gold= money and this move proves it.

If anything this experiment taught them they'll have to tread lightly on silver if
they want to succeed with QE2. Silver is the tail on the dog but it will wag the
dollar senseless if they aren't cautious.

notwilight

<< <i>Seems that silver was intentionally run up very strong the last couple of days, and especially this morning. You couldn't have timed the hit any better with a stop watch. What are the odds that the CFTC hit the peak perfectly when they announced? Any chance JPM & Co. got advance notice....naah. That would probably be illegal.

If you wanted to crush the silver market when would you time the hit? As MJ, the timing was incredibly suspicious and wonderfully accurate. I thought the CFTC was trying to look out for the little guy and even the field?

roadrunner >>



I would also guess they shortsellers were standing by with their program trades to exacerbate the situation, hoping to cause panic. --Jerry

BigRick

Thanks!

ibzman350

Otay.........I'm the first to admit I'm not the sharpest knife in the drawer............but isn't this a good thing for me. I can add to the stack at a cheaper price.

Right??




Herb

cohodk

<< <i>The net result was a dramatic and immediate liquidation.

"Somebody" wasn't expecting it, and "somebody" got creamed immediately. >>




Bought just a little early though. Paid 12.06 for ZSL, sweated for a little when it dropped to 11.60. SLV gapped higher after a long run, was only about a buck from the top end of channel, and volume was running at a record pace. In fact volume ended the day at 3x the previous peak. Quite insane. It was pretty clear the speculation was rampant and a correction was imminent.






Edited to add...Sold WAY too soon into the first leg higher. Always nervous of manias.

phantom1701

<< <i>

<< <i>There is nothing sinister here!
A few months ago when silver was $20 Per ounce and a 5000 ounce CME contract meant you were controlling $100 000 of silver for $5000 or 5% margin . At $29 dollars an ounce your $5000 controls $145 000 of silver which is only 3.5% and 5% would be $7250.
Why is everone surprised that they raised the margin?? >>



Id love to control $100,000 worth of silver at %5. How do I get on THAT market? >>



Derivatives. You can get in, but you better know what you are doing.

MsMorrisine

I still don't like the timing, and I agree with MJ that they could have announced this on a Friday after close.

However, it seems to me a speculative bubble was popped. To me that is a good thing, whether that was the intention or not.

57loaded

like i mentioned in another post silver isn't that bad over a 24 hr period, sandwiched between the announcement

MsMorrisine

now that the last day to exit before the margin is officially bumped is over, it will be interesting to see how silver performs.

cladking

Look at the action in today's financial markets.

I wouldn';t be surprised if this is the dog getting wagged by the tail.

The financial controllers had best be careful this dog doesn't get wagged to death.

I don't believe people today generally understand the nature of money. I think the ancient Egyptians
better understood it even though they didn't use it. Part of being able to get into heaven was to claim to have not
cheated any man in a business transaction; to always have supplied value for value. This is money not gold, not silver and
not greenbacks. You mess with the tail enough the dog is going to bite.

jmski52

I tend to agree with you, cladking.

MsMorrisine

anybody remember back when silver hit $29?

OPA

<< <i>anybody remember back when silver hit $29? >>



Yeah...it remained there for about 1 minute .... just as long as the Hunt brothers $50 top.

roadrunner

Yeah, except this time $29 is one of the first steps to a three digit price, not the last hurrah in a mania. The FEDs only had to fight the Hunts and their Arab partners back in 1979. This time the FED is fighting the entire world....slight difference. There are probably a number of Hunt clones out there in the world today who know better than to stick their head up where they can be picked off. Warren Buffet was one until he was bought off with an offer he couldn't refuse.

roadrunner