I personally like your model. Reminds me of the one Grant Williams uses in terms of pricing, you can also opt for a more exclusive option like Raoul or James Aitken. Hope it works out.
The issue I have with the clearinghouses is that regulators have forced them to the centre of the financial system, and everyone is forced to trade with them. My main point is that the way clearinghouse price risk makes 20 sigma moves more likely. And hence huge margin calls also more likely. How they choose to do deal with them will determine who lives and who dies. Why do they have that power? Do they deserve that power? Thats the issue
The LME must have the legal authority to pick and choose how it handles defaulting parties, or does this set a precedence that any member can take advantage of in future?
To renege on a bet usually means you are excluded from participating in future, do you see this as a possibility?
It seems an extreme risk that the LME has taken, surely they are no longer credible?
Clearinghouses served a very useful purpose, but they were always meant as useful additions to financial systems, not to be the centre of the financial system. Now that they are, they way they price risk invites these sorts of price move. So we can either accept this is the new system, and LME can pick or choose who lives and who dies - or we can ask is this system really an improvement on what existed pre GFC? We KNOW the users are unhappy, so change will come, one way or another
One key point is missing, the customers P&L’s were adjusted, so the clearing/members houses didn’t have to pony up. It saved all the members from paying and passed the risk/losses onto clients.
I disagree, any change in price/adjustments effects each long/short. (Zero sum game) So if a client bought at 50k and sold at 100k and he makes 50k and so if they bust the 100k trade they just took back his/her 50k and gave it to someone else. Under original exchange rules each clearing house would have had to spit the 50k loss from the firm that blew out.
I don't think it is zero sum. So clearinghouses will eventually bifurcate the market between hedgers who are naturally long, and speculators. When the speculators blows up, the hedgers lose their hedge (as the clearinghouse claws back gains). This was the reason the big players wrote a joint article asking for reform. The clearinghouses are lending to speculators, but its the real players who have to put up the balance sheet. For speculators its nirvana, able to leverage to levels that no bank would ever agree to - but its still the bank balance sheet at risk, but with out any bank risk controls.
FYI great article. If the losses were 12b most of the clearing houses would have blown out because they would not have been able to meet the margin call or pro rata share, hence causing a domino effect on the other clearing houses. So a compromise was struck and they screwed the customers v members.
You should have married Tina Turner and she could have been waking you up every morning with the "simply the best" song 😂😂😂😂😂
If i work out a way to monetise it - then that would be true...
I personally like your model. Reminds me of the one Grant Williams uses in terms of pricing, you can also opt for a more exclusive option like Raoul or James Aitken. Hope it works out.
Nothing to see here;
1) LME owned by the Hong Kong Stock Exchange
2) Tsingshan Holding Group facing Margin calls
3) CCBI (China Construction bank) is the broker
4) https://www.telegraph.co.uk/business/2020/02/08/deafening-silence-london-metal-exchange-nickel-market-manipulation/
BAU
The issue I have with the clearinghouses is that regulators have forced them to the centre of the financial system, and everyone is forced to trade with them. My main point is that the way clearinghouse price risk makes 20 sigma moves more likely. And hence huge margin calls also more likely. How they choose to do deal with them will determine who lives and who dies. Why do they have that power? Do they deserve that power? Thats the issue
The LME must have the legal authority to pick and choose how it handles defaulting parties, or does this set a precedence that any member can take advantage of in future?
To renege on a bet usually means you are excluded from participating in future, do you see this as a possibility?
It seems an extreme risk that the LME has taken, surely they are no longer credible?
Clearinghouses served a very useful purpose, but they were always meant as useful additions to financial systems, not to be the centre of the financial system. Now that they are, they way they price risk invites these sorts of price move. So we can either accept this is the new system, and LME can pick or choose who lives and who dies - or we can ask is this system really an improvement on what existed pre GFC? We KNOW the users are unhappy, so change will come, one way or another
One key point is missing, the customers P&L’s were adjusted, so the clearing/members houses didn’t have to pony up. It saved all the members from paying and passed the risk/losses onto clients.
Depends where pricing ends up....
I disagree, any change in price/adjustments effects each long/short. (Zero sum game) So if a client bought at 50k and sold at 100k and he makes 50k and so if they bust the 100k trade they just took back his/her 50k and gave it to someone else. Under original exchange rules each clearing house would have had to spit the 50k loss from the firm that blew out.
I don't think it is zero sum. So clearinghouses will eventually bifurcate the market between hedgers who are naturally long, and speculators. When the speculators blows up, the hedgers lose their hedge (as the clearinghouse claws back gains). This was the reason the big players wrote a joint article asking for reform. The clearinghouses are lending to speculators, but its the real players who have to put up the balance sheet. For speculators its nirvana, able to leverage to levels that no bank would ever agree to - but its still the bank balance sheet at risk, but with out any bank risk controls.
FYI great article. If the losses were 12b most of the clearing houses would have blown out because they would not have been able to meet the margin call or pro rata share, hence causing a domino effect on the other clearing houses. So a compromise was struck and they screwed the customers v members.
its not a compromise when its unilaterally applied