ICE/CME Margin Adjustments

I bet you never thought you'd see the day when either of the two actually lowered margin! That's exactly what happened this weekend, at least with respect to initial margin, a drop of nearly 30% ACROSS THE BOARD!

The reasoning?
As MF Global customers are transferred to other brokerages, only about 60% of the margin money is available from MF accounts to go along with those customers, so some may not have to put up additional margin, some will get margin calls. Since many can't afford the extra margin and would be forced out of positions, the initial margin is being lowered across the board, which includes equity futures such as ES.

The odd thing is that they made the cut across the board rather then specific to MF Global accounts only, which will likely have the opposite effect of what was intended, a smooth transition with minimal disruptions to the futures market, to everyone now being able to put on new positions at a significant discount with regard to initial margin.

It's hard to say what effect this will have as the typical short to long ration in equities in 1:9 but in futures it is 1:1 as most futures traders open a long position they have an offsetting short position as well.

What does seem to be a problem causing excessive volatility is having all of these new positions put on at a discount, obviously they won't all go as the traders have planned and may disrupt or change the amount of maintenance margin calls that go out, thereby creating excessive volatility in the futures market as margin calls are not met and the positions are instead liquidated.

Why in the world CME/ICE didn't limit this to MF Global accounts only is beyond me. The measure is said to be temporary, but most of the accounts will be transferred within the next few days, yet they don't give a timeline, this could cause excessive volatility early in the week as non MF-Global customers seek to take advantage of the lower initial margin rates, not knowing how long the party will last.

Here's CME's clarified statement on the new margin rates.