"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, November 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.


  1. If I'm reading this correct it appears that the initial margin will be lowered to maintain margin ONLY for MF global customers. Not for any one else? Or will it be for everyone? I don't get what there last notice was about?

  2. Dan,

    Normally lowering margins would be seen as the CME taking on more risk while increasing would be seen as the reverse. In the context of the MF Global problem, they obviously see lowering margins as taking on LESS risk. Does this mean the possibility of large-scale liquidations is very real?

  3. flaunt;

    it is actually more risk but it seems as if CME is more concerned about market disruptions from mandatory forced liquidations than from the initial lowering of initial margin rates.Still, this insane market volatility is pretty much going to guarantee that this sort of thing will not last all that long. Just long enough to provde a more orderly transfer and adaptation of these trading accounts and then I think we will them move to get the margins back up. the price swings in the markets are just too wild right now.

  4. Thanks Dan, just seems like taking on more risk at a time when there's such uncertainty is madness. Why doesn't it apply only to previous MF Global customers transferring existing positions to new clearing firms? Am I going to find my initial margins reduced Monday morning or is it at the discretion of my broker? What the heck happens when specs get even more levered up "temporarily" (yeah right) and then suddenly find their margins jacked back up to previous levels? Nothing about this feels right but then I have only been around these markets for a few years.

    Appreciate your help.

  5. Dan,

    what can you tell me about J.B. Slear and Fort Worth Trading--Looking for a new broker and company if i ever get out of FM global's mess.
    Particularly interesting in gold futures etc


  6. dan,

    so is this bullish or bearish for gold at sunday night's opening?


Note: Only a member of this blog may post a comment.