Tag: Global News

Clearing Houses Could Face a Liquidity Crisis of Historic Proportions

Clearing houses could face a liquidity crisis
The stock market will mirror the commodity sector’s liquidity issue

The CFO of Trafigura just said clearing houses will collapse as “margin call doom loop” goes global.

Last week the commodities sector (oil, petroleum, metals and minerals) saw margin calls worth billions of dollars.

Trafigura Group is one of the world’s top oil and metal traders.

Trafigura has in recent weeks stepped up efforts to seek new funding from beyond its traditional group of bank lenders, according to people familiar with the matter. 

And no one is able to meet equity demands.

Let’s break it down together.

franknez.com

Welcome to Franknez.com – we’re seeing something very interesting unfold here as margin calls are triggered and short sellers brace for short squeezes.

Let’s dive right into it!

Join the newsletter to become part of an activist group fighting for market transparency!

Receive weekly market news to stay up to date.

“Margin call doom loop” goes global, Trafigura CFO warns

Trafigura CEO Margin Call Doom Loop
Clearing houses face liquidity issues – Trafigura CFO warns of ‘margin call doom loop’

Trafigura Group, one of the world’s top oil and metals traders, has been holding talks with private equity groups to secure additional financing as soaring prices trigger giant margin calls across the commodities industry.

The trader held talks with Blackstone Inc. for an investment of around $2 billion to $3 billion but those talks ended without a deal.

Trafigura has also approached Apollo Global Management Inc.BlackRock Inc. and KKR & Co.,.

The discussions have been based on raising funding due to several margin calls the commodity industry has been facing recently.

There’s no certainty any of the discussions will progress to a deal, they said. (Bloomberg)

These large companies facing margin calls are having a very big problem meeting demand.

Now, the increase in IM (initial margin) created demands on hedge funds and other investors.

Prepare for short squeezes

Studies have looked at the connection between margin calls and market stress, and most have focused on a margin call doom loop” in which higher margin requirements force fire sales into an already illiquid market.

This process then triggers more margin calls.

Financial institutions are going to be forced to sell assets, triggering short squeezes in heavily shorted stock.

The Dow Jones and NASDAQ are down today as ‘meme stocks’ are soaring.

AMC is up more than 24%, GME stock 11%, and HYMC more than 45%.

The price runups on AMC and GameStop shows us the stocks are merely getting warmed up.

We know this because of the short interest data (updated daily here).

As more market stress begins to settle, hedge funds will be required to keep up with their margin requirements or be forced to liquidate their positions.

clearing houses cash in margin

Globally, cash IM (in margin) is typically held by banks.

A bigger short squeeze than Nickel?

Nickel short squeeze

Analysts are expecting a bigger short squeeze than nickel to occur which soared more than 250%.

Although nickel is in the commodities sector, the financial system goes full circle.

The banks distribute cash and even bailout companies despite the industry.

“Expect much more commodity volatility, and many more multi-billion margin calls, until eventually the big one is triggered, one which leads to a near default not of the LME but of a far bigger clearinghouse.” ZeroHedge.

The liquidity issue in the commodity sector could threaten broader financial stability and create broad liquidity squeezes.

Trafigura’s chief financial officer warned that the spike in capital needed to keep commodities flowing around the world since Russia invaded Ukraine would squeeze smaller trading houses out of the market.

Bloomberg reported that trading houses have been seeking funds to maintain their physical and derivative positions as prices of everything from natural gas to metals soar.

Since commodities represent the basic building blocks of all products in an economy, the prices of commodities affect the operational costs of corporations.

This in turn affects prices in the stock market, further sparking margin calls in this sector.

What will happen as clearing houses require more liquidity?

Leave a comment below.

Stick around for more market news

franknez.com

Don’t forget to browse the blog for the latest market news and ‘momentum stock‘ articles using the drop-down menu.

Join the newsletter to be part of a large investor community fighting for a fair market!

You can follow me on: Twitter | Facebook | LinkedIn


Credit Suisse News: Margin Call Tension Rises in Global Markets

Credit Suisse Margin Call
Tensions rises – Credit Suisse News – Credit Suisse margin calls investors

Credit Suisse is triggering margin calls on clients that use Russian resources as collateral.

With Russian assets falling in value, it’s causing a domino effect that’s going to affect all global ties to Russia.

Margin calls are going to affect banks and financial institutions to close and liquidate their positions.

franknez.com

Welcome to Franknez.com – margin calls are on the horizon. And it’s going to tank the stock market even lower.

Let’s dive right into it!

Join the newsletter to receive weekly market news and updates.

Wealthy individuals face frozen accounts

wealthy individuals face frozen accounts

The invasion of Ukraine has left wealthy individuals invested in Russian assets with frozen accounts and demands for more collateral.

In a margin call, banks ask investors to add cash or securities to a portfolio that typically includes borrowed funds when the market value drops below margin requirement.

The bank can forcibly liquidate clients’ holdings if they are unable to deposit the funds.

Credit Suisse told PBI that its position in the matter remains unchanged.

“Credit Suisse serves its clients while complying with all applicable laws and regulations, including any sanctions from relevant authorities,” the firm said.

This isn’t affecting just Europeans; Credit Suisse is imposing margin calls in the U.S. too.

How is this affecting investors in the U.S.?

Getting rid of Russian assets is a big problem for hedge fund managers in the U.S.

Russia’s central bank retaliated by banning Russian brokers from selling securities held by foreigners.

Furthermore, Russian Prime Minister Mikhail Mishustin said the country will temporarily stop foreign investors from selling Russian assets.

Hedge funds in the U.S. holding Russian assets are in a big mess right now.

Margin call tension is causing liquidation in many areas of the market.

U.S. hedge funds will be forced to liquidate positions or hedge their plays, further overleveraging short positions.

Financial institutions in the U.S. exposed to Russia

Morgan Stanley - Credit Suisse AMC Margin Calls
Morgan Stanley – Credit Suisse AMC Margin Calls – Credit Suisse News Bloomberg

Citigroup disclosed in its annual report that it has nearly $10 billion in exposures to Russian counterparties, including loans, reverse repo agreements and cash deposits. 

Citigroup stock is down more than 11% year-to-date.

Morgan Stanley’s next gen emerging markets fund (MFMIX) has also been exposed to Russia.

Nearly $16.6 million is frozen due to Russian sanctions.

That’s 13.6% of the total net assets of $122 million in the fund.

Schwab’s fundamental emerging markets large company index ETF (FNDE) has also been affected.

Out of the $4.8 billion in assets, 12.7% have been exposed to the Russian stock market.

Related: Regulators are taking Morgan Stanley and hedge funds to court

Credit Suisse aids U.S. probe of rivals Morgan Stanley and Goldman Sachs

Hedge fund FBI raids
Morgan Stanly and others under investigation – Credit Suisse AMC relations? Credit Suisse News Bloomberg

Credit Suisse is trying to help the U.S. Department of Justice build a case to block trading against rivals Morgan Stanley and Goldman Sachs, REUTERS.

The bank delivered a presentation to the U.S attorney’s Office in New York flagging issues leading to the collapse of Archegos Capital.

Archegos Capital was a private family office, also known as unregulated hedge funds, that caused banks to lose billions of dollars.

Banks and hedge funds are currently under investigation by the Justice Department for illegal trading activities.

Two of these banks under investigation are Morgan Stanley and Goldman Sachs.

One hedge fund has been raided by the FBI for flooding the market with fake orders to drive the price of stocks down.

It comes as no surprise Credit Suisse is imposing margin calls on investors but also attacking its rivals.

Credit Suisse news Bloomberg

What does this mean for shareholders?

Leave your thoughts in the comment section below.

You can follow me on: Twitter | Facebook | YouTube | LinkedIn


© 2022 Franknez.com

Theme by Anders NorenUp ↑

%d bloggers like this: