Re: Friday's steep drop in oil prices
Friday had steep drops in oil and other commodity prices due to new (higher) margin requirements due to take effect Monday. This would force traders to either put up more collateral or reduce overall position sizes. The latter was the course most chose to take, so Friday's trading was characterized by numerous parties encountering forced position unwindings. These new requirements now will go into effect in 3 months instead of Monday, so the reason for Friday's price drops has been removed.
UPDATE 1-ICE gets 90-day reprieve from new margin rules
May 4 (Reuters) - IntercontinentalExchange Inc said it has received a 90-day reprieve from regulators for implementing controversial changes to non-hedge initial margins required under new federal legislation.
The new margin policy was due to come into effect on Monday, but Atlanta-based ICE and its Chicago rival CME Group have rushed to secure an extension and delay the changes after traders expressed alarm about the financial impact of the changes.
ICE Clear U.S. and ICE Clear Europe have requested and been granted by the Commodity Futures Trading Commission (CFTC) an extension until Aug. 5, two ICE notices said on Friday.
The CME did the same on Thursday after it sent out a notice announcing the changes, causing widespread confusion among its members.
The change is required under new federal Dodd-Frank exchange rules, which means ICE's clearing members will have to collect higher margins from customers who want to initiate a new speculative position.
The new rules require ICE Clear Europe, where Brent crude and gasoil trade, and ICE Clear U.S. to increase initial margins on non-hedge positions.
There is no change for positions that qualify as hedging. Those market participants will be able to continue paying the lower hedge margin.
ICE said it will work with the regulators to deal with concerns among market participants about the impact of the changes during the 90 days.
CME traders said the new policy would increase margin costs by as much as a third for exchange members who are classified as speculators.
The new policy is not expected to affect ICE as much because it has fewer members.
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