CME Group Announces Margin Requirement Changes

May 3, 2012 01:42 AM

What Traders are Talking About:

* More changes at CME. CME Group announced yesterday. "Effective Monday, May 7, new CFTC Regulation 39.13(g)(ii) [part of the Dodd-Frank financial oversight law] mandates each DCO to require its clearing members to apply 'initial to maintenance ratios' for customer accounts with non-hedged positions. There is no exception for speculative customer accounts of exchange members that fall within the Regulation. The Regulation applies equally to positions that are regulated as futures and to positions regulated as swaps. Note that the requirement only applies to non-hedged member accounts. Member accounts containing hedged portfolios are always assessed only at the maintenance requirement level. Most CME Group members engage in hedging activity on a routine basis -- for example, they make a market in one set of our products and lay off their risk in another set of products at CME Group or other markets. Such positions are still subject to hedge treatment. Note, however, that if you are a member and you have only outright positions you will be subject to the new rule."

The long and short of it: The announcement triggered some liquidation pressure on grain and soy futures late Wednesday, but the potential fallout from this doesn't appear like it will be as great as originally feared by some.

* Day 2 HRW wheat tour results. Scouts found remnants of last year's drought on the second day of the Wheat Quality Council's HRW tour through Kansas, especially in the southwestern part of the state, although disease pressure wasn't as prevalent as in central and northern Kansas. The Day 2 average yield came in at 43.7 bu. per acre, well above last year's 33.4 bu. average on similar routes. Through the first two days of the tour, the average yield is 48.5 bu. per acre compared to 36.7 bu. last year. Scouts said late-season rains are needed through western and southern areas of the state for the crop to reach the yield potential that was calculated by tour data. A separate group of scouts who toured fields in Oklahoma found an average yield of 39.6 bu. per acre and estimated the state's wheat crop at 164.5 million bushels. Scouts will sample fields from Wichita to Kansas City before meeting at the Kansas City Board of Trade for the final meeting. Final tour results and a guesstimate of tour participants will be released this afternoon.

The long and short of it: While this year's crop has better yield potential than last year's drought-plagued crop, it's not in the bin yet and there are some concerns.

* Euro-zone concerns mounting again. On Tuesday it was disappointing PMI data from the euro-zone that sparked investor concerns. Today, economic worries are being fueled by a Spanish debt auction. While demand for the Spanish debt was good, yields jumped from recent levels, highlighting investors' concerns about the country's economy. Meanwhile, the European Central Bank (ECB) left interest rates unchanged, as expected. Focus is now on a press conference from ECB President Mario Draghi later today.

The long and short of it: With euro-zone concerns on the rise again, the euro is under pressure, which is supporting the U.S. dollar index. In turn, the dollar strength is a negative for commodities.

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