CME, ICE Cut Margin Needs to Limit MF Global Fallout

Tallahassee, FL 11/7/11 (StreetBeat) - CME Group (NasdaqGS: CME) and IntercontinentalExchange Inc (NYSE: ICE) moved over the weekend to limit the fallout from the MF Global Holdings Ltd (Other OTC: MFGLQ.PK) bankruptcy on futures markets by lowering margin requirements on some accounts.

The CME also asked brokers who have taken over customer accounts from MF Global, which filed for bankruptcy protection on October 31, to not disburse any of the money until at least the close of business on Tuesday as it looks to verify the amounts involved. "The exchanges have lowered the margins to help the transition until the cash arrives," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. "While it's a prudent thing that the exchanges are allowing people to transfer the positions away from MF Global, funds should also be transferred as well, instead of having people pay the margins twice."

Traders had worried that a rush to cover margin requirements on MF Global accounts transferred to other brokers could lead to heightened market volatility. There was little evidence of this on markets for CME futures like U.S. crude or wheat on Monday.

Volumes on ASX Ltd's Australian grain futures leapt on Monday, after slowing to a trickle last week, with January wheat trading a record quantity.

PROVIDING RELIEF
The ratio of the initial margin, paid when an investor has to meet a margin call, has been changed to zero versus the maintenance margin, CME said.
Initial margins are higher than maintenance margins to provide an additional buffer against losses.

For example, the maintenance margin on 2011 Nymex crude oil contracts is $6,000, and the initial margin is $8,100, according to the CME website. The margin reduction for MF Global clients is aimed at providing "market relief to customers whose accounts have been disrupted by this event," the Chicago-based CME said in a statement on November 5. "The margins differed according to products," Jeremy Hughes, a Singapore-based spokesman at CME, said in an e-mail response to queries.

IntercontinentalExchange Inc (NYSE: ICE), which operates the London-based ICE Futures Europe, said in a statement that ICE Futures U.S. is temporarily lowering the initial margin rate for speculative accounts to a level equal to the maintenance margin rate for all contracts. "This action is being taken to mute the impact of the transfer of accounts from MF Global Inc. to other clearing members," the exchange said.

ACOUNTS ON HOLD
The collapse of MF Global comes at a time when the Commodity Futures Trading Commission, Securities and Exchange Commission and bank regulators are writing some 400 new rules required by last year's Dodd-Frank financial reform law. The changes heightened futures firms' concern of an increase in operational costs and limits on how they invest customer funds for their own benefit.
CME Group, the biggest operator of U.S. futures exchanges, has directed members to delay the distribution of transferred funds and proceeds of the liquidation of any transferred positions until the calculation is over. There have been conflicting reports about the whereabouts of $633 million of missing customer money, whose disappearance derailed MF Global's effort this week to quickly sell a variety of assets.

"We will notify firms promptly as customers' accounts are verified and the hold is lifted," the CME said. The calculation is expected to be completed by the close of business on Nov 8, it said.

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Stocks were little changed throughout most of Asia. The Hang Seng had the biggest move at the close with a loss of about one percent, but Shanghai was unchanged on the session, Australia was down a slight fraction and the Nikkei added just a slight fraction. European indexes are generally higher on the day, but the Dax is up just a few points and the Footsie is lower by just a few points. US stock futures are essentially unchanged.

*The Reserve Bank of Australia noticed that consumer caution was easing price pressures, according to the minutes from their latest policy meeting, and they said that retailers were reporting “highly value conscious” consumers. But there were more signs of “expected strong expansion” in the resource sector, but all said and done there say medium term inflation outlook is mostly unchanged.

*The January reading of China’s Consumer Price Index showed that the annualized rate was up three tenths on the month to 4.9%, about a half point less than forecast, but apparently right on the whisper. Also released last night was the January reading of China’s Producer Price Index, this was 6.6% annualized, four tenths more than forecast.

*The final December reading of Japan’s Industrial Production was revised up a couple of tenths to +3.3% on a month on month basis. The annualized rate was also revised up three tenths to +4.9%.

*The Bank of Japan left their key interest rate unchanged at 0.10%, as expected. Governor Shirakawa said they were keeping a careful watch on the moves in long-term rates, but that the BoJ’s zero rate pledge helps to contain bond yields.

*The Q4 reading of German GDP was +4.0% on a year over year basis, one tenth under the forecast,

*The February reading of Germany’s ZEW Survey of Economic Sentiment was up only three tenths to 15.7, well under the estimate for a rise up to 20.0, but it is still the highest level for the survey since last July. However the ZEW for Current Economic Conditions was up more than two points to 85.2, beating the estimate by a couple of points; a new high for the move and the best result since July 2007.

*The January reading of the UK Consumer Price Index was up one tenth on the month and +4.0% year over year, both readings matched the estimate. Although Governor King continued to maintain in his letter to the Chancellor of the Exchequer that the rise in inflation is temporary, he did concede that there is a “great deal of uncertainty” about inflation and noted that there were “real differences of view” within the policy committee on the matter. This is the fifth consecutive month that King has been required to write his inflation letter to the Chancellor because the annualized inflation rate has been above their target and at some point these monthly notes will begin to look stale and pressure will build on the BOE to act.

*The weekly report on chain store sales from ICSC shows a decline of 1.4% on a week on week basis for the week ended February 12; the worst weekly result since early January. The Johnson Redbook report on the same thing is due out at 7:55am CST.

*There are three bits of data due out at 7:30am CST: the January reading of Retail Sales is expected to be up 0.5% on the month and Sales Ex-autos is forecast to be +0.5%; the January reading of the Import Price Index is expected to be +0.8%; and the February reading of the Empire State Manufacturing Index, which is forecast to rise to 15.00 from 11.92 the month before. The Treasury will announce at 8:00am CST the net change in December of the foreign holdings of US long-term securities, it is expected to be an increase of $40.0 billion. The December reading Business Inventories is due out at 9:00am CST, it is forecast to be +0.7%. Also due out at 9:00am is the NAHB Housing Market Index, expected to be steady on the month at 16.

*The BLS will report its annual revisions for the Consumer Price Index at some time this morning.

*There are two Fed speaker on the calendar for 9:00am; Cleveland Fed boss Pianalto will talk about economic conditions in her district and Governor Tarullo will testify on derivatives regulation.

*The Fed is scheduled to buy Treasuries today that are due to mature between 2/28/15 and 8/15/16; the results of the operation will be announced just after 10:00am CST.

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Stocks were mixed in Asian trade. The Nikkei was among the best with a gain of a bit more than one percent and Australia was up almost 0.9%. The Hang Seng and Shanghai remain closed for the holiday. European indexes are generally higher on the day, with the Dax and Footsie both up about a third of a percent. US stock futures are higher by a fraction.

*In January UK house prices rose 0.8% on a month to month basis, according to Halifax, better than the decline of 0.3% that was expected.

*The Jobless Rate in Canada increased 0.,2% in January to 7.8%, it had been expected to be steady from December. But the net change in the number of employed was up 69.2k, well above the estimate for a gain of 15.0k.

*The January reading of the Employment Situation is due out at 7:30am CST. The Jobless Rate is expected to increase one tenth on the month to 9.5%; the estimate for total Non-farm Payrolls is 146k and the guess for the private sector is +145k; Average Hourly Wages is expected to rise 0.2% on the month and the Average Work Week is forecast to be steady at 34.3 hours. Remember there will also be some revisions announced. The benchmark revision for the twelve months ending March 2010 was estimated by the BLS to be -366k. There will also be some preliminary revisions for each month of 2010.

*The Fed is scheduled to buy Treasuries today that are due to mature between 8/15/13 and 1/31/15; the results of the operation will be announced just after 10:00am CST.

*Dallas Fed boss Fisher is set to speak on the economy at noon CST at the U of Texas.

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Stocks were mixed in Asian trade. Australia gained a half percent, but the Nikkei was down a quarter percent. The Hang Seng and Shanghai were both closed for the holiday. European indexes are generally lower on the day; the Footsie is currently down about 0.4% and the Dax is a slight fraction lower. US stock futures are also a slight fraction lower.

*Cyclone Yasi is the first category 5 storm to hit Queensland, Australia since 1918. It is estimated that 178k homes and businesses are without electricity, and some areas might be without power for a month, officials say. No deaths have been reported as a result of the storm, but among the damages was the sugar cane, estimates are that half the area’s crop has been destroyed; Queensland is home to 15% of the country’s sugar cane production.

*The December reading of Australia’s Trade Balance was a surplus of A$1.98 billion, down a fraction on the month but above the estimates. For 2010 as a whole the trade surplus was a record A$16.6 billion.

*The January reading of China’s service sector Purchasing Managers Index was down one tenth on the month at 56.4.

*The final January reading of Germany’s service sector PMI was revised up three tenths to 60.3, the highest mark since June 2006. The Eurozone’s Composite PMI for January was revised up seven tenths to 57.0, the best level since last April.

*The ECB kept policy and rates steady at the meeting today. ECB boss Trichet will tell us all about it at his presser beginning at 7:30am CST.

*The January reading of the UK’s service sector PMI jumped almost five points on the month to 54.5, the highest mark since last May.

*The chain stores are releasing their January same store sales results this morning, some of the early reports include: Cato -4.0%, Stage Stores +5.1%, The Buckle +4.3% and Wet Seal +6.2%.

*The weekly report on Initial Jobless Claims is due out at 7:30am CST, it is expected to be 420k. Also due out at 7:30am is the Q4 reading of Non-farm Productivity, forecast to be +2.0%, and the Unit Labor Costs, which is expected to rise 0.2%. The January reading of the ISM Non-manufacturing Composite Index is due out at 9:00am CST, the estimate is for a steady reading on the month at 57.1. The December reading of Factory Orders is also set for a 9:00am release, it is forecast to be -0.5% on the month.

*The weekly report on inventories of Natural Gas is due out at 9:30am CST, it is expected to show a decline of 187 bcf.

*The Fed is scheduled to buy Treasuries today that are due to mature between 8/15/16 and 1/31/18; the results of the operation will be announced just after 10:00am CST.

*Fed boss Bernanke is scheduled to speak at the National Press Club at noon CST. No topic has been announced but there will be Q and A following the prepared remarks.

*Minneapolis Fedster Kocherlakota is set to speak at 7:00pm CST at the U of Minnesota. He is expected to deliver essentially the same speech he first gave in early January, with updated forecast and data.

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*Heavy snow and strong winds are crippling the Midwest and are now heading to the east. But there is also dangerous weather bearing down on northeast Australia in the form of Cyclone Yasi, which threatening to bring extreme rainfall back to the flooded Queensland area of the country.

*Stocks in Asian trade were generally strong. The Nikkei and Hang Seng were among the best with a gains of almost 1.8% and Australia rose about 0.9%. Shanghai was closed as the Lunar New Year celebrations have begun. European indexes are mixed, with the Footsie currently higher by about a half percent, but the Dax is off a fraction. US stock futures are lower by a slight fraction as I write.

*US mortgage applications rose 11.3% in the week ended January 28, according to the Mortgage Bankers Association, there were gains for both the purchase and refi components.

*The Challenger Group reports that in January there were 38,519 job cut announcements. That is up 6.5k from a month ago, but down 46% from a year ago.

*ADP released their estimate for private sector non-farm payrolls in January, +187k, it was expected to be +140k.

*The Treasury is expected to announce at 8:00am CST the details for next week’s refunding auctions of 3 Year and 10 Year Notes and 30 Year Bonds

*The weekly report on energy inventories is due out at 9:30am CST. Stocks of Crude Oil are forecast to increase 2.5 million barrels, Gasoline inventories are expected to rise 2.0 million and the estimate for Distillates is -1.0 million.

*The Fed is scheduled to buy Treasuries today that are due to mature between 2/15/21 and 11/15/27; the results of the operation will be announced just after 10:00am CST.

*Fed Governor Duke is scheduled to speak at 4:30pm CST; no topic has been announced.

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