CME opens account at Fed

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The CME curiously reported that it received notice from the Federal Reserve that it is authorized to open an account at the Fed which would “allow it to better safeguard cash deposited by its traders” CME/Fed Account.

This is event is notable for several reasons. First and foremost is the fact that the CME was designated as a “systematically important” financial institution as part of the Dodd-Frank “hoodwink the taxpayer” Act. ...

... the “systematically important” designation is nothing more that a guarantee to the banks that Taxpayer money will be tapped to ensure bonus payments may remain uninterrupted in the event of a bank collapse.

Another puzzling aspect of the CME’s decision to open a custodial account at the Fed is in the CME’s statement that the Fed account will allow it to better “safeguard” cash deposited by its traders. Note that the account is limited to “clearing members proprietary margin” accounts. This would be the cash put up by Comex clearing members – like the Too Big To Fail Banks (JP Morgan, Goldman, Citi, HSBC etc) – against margin requirements.

Why is a Fed custodial account any better than a custodial account held by a big bank? Is this an unintended signal from the Fed that the big banks are no longer safe as custodians of cash deposits?

To me this reeks of the CME enabling a mechanism that “ring-fences” any cash equity put up by clearing members for the purposes of protecting that cash against an event of default or bankruptcy. It would give the CME control over this cash. This is what occurred when Jon Corzine incinerated MF Global and JP Morgan was able to grab any and all available collateral for its own benefit.

Again, this suggests to me that CME is concerned about the risk embedded in the proprietary futures and derivatives positions of its clearing members. I would suggest that the CME is specifically nervous about the precious metals futures positions held by JP Morgan, HSBC and Scotia.
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More: http://investmentresearchdynamics.com/is-the-cme-preparing-for-an-eventual-comex-default/

 

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Presumably this is so the CME can settle the multiple claims to their nonexistent gold and silver in cash and no worries if a few more claims are sold .........

Fed underwriting the whole CME operation then.

Are they getting ready for something ?

 

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In yet another a sign that the turmoil in financial markets is putting extreme stress on some firms, one of the CME Group's direct clearing firms was unable to meet its capital requirements, according to sources.

The move forced the exchange to step in and invoke its emergency protocols to auction off the portfolios. Ronin Capital, based in Chicago, was confirmed to be the firm in question, according to sources.

Terry Duffy, the CME Group's chairman and CEO, told CNBC the auction process was completed Friday morning, but said the group doesn't disclose who assumed the portfolios in the auction.

Duffy also said that under its clearing agreement, Ronin isn't allowed to have outside clients so there were no customers harmed in the process.

In general, clearing firms like Ronin, are responsible for trades made on the exchange.

Additional sources said Ronin's problems stemmed from positions in futures tied to the CBOE Volatility Index, or the security that tracks market volatility.

The Depository Trust and Clearing Corporation, or DTCC, helped coordinate the auction, later saying it had ceased to act for Ronin Capital, LLC.

https://www.cnbc.com/2020/03/20/cle...meet-capital-requirements-at-cme-sources.html

I wonder how many direct clearing firms the CME has. Peeps going to wake up one day and not be able to trade their paper metals, but at least the Fed will make them whole with Monopoly money.