Market News: Phase 6 Margin Call Requirements on the way | ISDA
Market News: Phase 6 margin call requirements are on the way.
Institutions under UMR who had not previously been affected by these specific margin requirements will be as of September 1st, 2022.
Uncleared Margin Rules (or UMR) were created to address the OTC derivatives market–and its participants– in the wake of the global financial crisis (GFC) of 2008-2009.
It implemented new margin requirements for non-centrally cleared derivatives to avoid further systemic risk.
For this reason, they were ‘phased in’, or broken down by phases.
Institutions affected by phase 6 margin call requirements could find themselves in a sticky situation and I’m going to discuss why down below.
Let’s get started!
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Preparing for margin calls
The requirement to exchange initial margin for over-the-counter (OTC) derivatives is one of the last remaining pillars of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that remains to be fully implemented.
The five-year implementation period began in 2016.
UMR Phases – Phase 6 margin requirements
The chart above depicts the number of counterparties affected throughout each phase.
Phase 5 occurred in September of 2021 where 319 counterparties were affected.
We will be entering Phase 6 in September of 2022, where 775/990 counterparties with more than the $8 billion scope detailed on the graph, or gross amount across all uncleared OTC trades, will be affected.
Phase 5 of UMR touched a mix of sellside and buyside firms, especially medium-sized banks and larger buyside firms.
However, Phase 6 is almost exclusively buyside-focused meaning we could potentially see a massive market rebound, per Bloomberg.
Institutions affected by Phase 6 margin call requirements may include asset managers, banks, hedge funds, and private family offices.
The entire process is extremely challenging according to Bloomberg.
But while it may seem complex in nature, it’s the results that truly matter.
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How long will it take for margin calls to happen?
Although Phase 6 margin call requirements are going into effect on September 1st, 2022, it’s important to note that this is going to take some time.
The derivatives market is massive, now boasting approximately 1 quadrillion derivatives as of May 2022, per Investopedia.
The Senior Principal at BNY Mellon has said in the past that even after Phase 6 there will be margin calls that will still have to be processed.
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AMC drops to all-time lows again
Are institutions preparing to close short positions in AMC stock?
The entire market is on a free-fall.
AMC Entertainment stock managed to fall below $13 on Monday despite heavy buying volume.
The off-exchange trading for AMC is currently around 62.26% according to Fintel, and shorts have borrowed an additional 1M shares to short the stock according to Stonk-O-Tracker.
These predatorial strategies have retail investors pinned and losing money on their investment.
The economy’s health isn’t helping much either, but further fueling the market’s stress.
Interest rates are rising, inflation is at an all-time high, and the U.S is battling several issues outside the country with Russia and Ukraine, and at home.
Today’s economy has the entire market beat.
And AMC Entertainment is no exception the free-fall despite the company’s continuous progress.
AMC has become a trading ground
Traders and institutions are trading AMC at all times.
At some point, positions will have to get closed.
DTCC B16845-22 raised margin requirements by 25% for stock trading above $10 per share.
If AMC stock drops below $10 per share, then margin requirements will be raised to 30%.
This is rather significant because it requires institutions shorting AMC stock to carry more collateral.
Unfortunately for the rest of the market, institutions will continue to create massive selloffs just to keep up with these margin requirements.
But it gets worse for them because the lower AMC drops, the more collateral will be required of them.
Financial institutions are being stretched beyond their means and it’s not going to end well for them.
We’ve already seen hedge funds fall – and we can expect this trend to continue.
Market News: Citadel faces potential default on Russian bonds
Citadel is facing potential default on convertible bonds from Russia’s Yandex NV.
Yandex NV is an internet and technology company that provides an internet search engine in Russia and other international markets.
Tigran Khudaverdyan has stepped down from his roles as Executive Director and Deputy CEO at Yandex.
Citadel could default on convertible bonds worth billions.
Here’s how Russia is affecting the hedge fund.
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Chinese tycoon gets away with $8 billion margin call
London Metal Exchange
The tycoon whose big short bet on nickel helped trigger one of the most dramatic price spikes in history has told his banks and brokers that he doesn’t intend to reduce his position, according to Bloomberg.
The London Metal Exchange halted trading in nickel after prices spiked as much as 250% in two days.
Xiang has told the roughly 10 banks that he still believes prices will fall and that he would like to keep his short position.
The LME acknowledged that short sellers weren’t going to voluntarily reduce their short positions.
It said there were “considerable differences in view on the appropriate price.”
Apparently big net worth short sellers make the rules.
They Chinese Tycoon secured a deal with JP Morgan and China Construction Bank that would allow it to avoid defaulting on its $8 billion margin call.
LME halts Nickel trades
The LME cancelled $4 billion in transactions as Nickel prices began to surge.
The exchange said: “Nickel will be deemed a disrupted session and all agreed trades during this session will be null and void.”
In other words, they took away the ‘buy’ button and are allowing short sellers to either close their positions or profit on the way down.
Apparently the LME has decided to bust all Nickel trades in the "second ring session" today.
This is really nuts. They are ruining their exchange's credibility to protect some very wealthy/powerful people/firms. You can't run a market like this, busting trades at someone's whim.
Dave Lauer says the exchange is ruining their credibility by protecting very wealthy and powerful people/firms.
“You can’t run a market like this, busting trades at someone’s whim.”
The halts are similar to those that occurred last year during the ‘meme stock’ frenzy when Robinhood froze the purchasing of GameStop, AMC, and other heavily shorted stock.
At some point, the people will cause an uproar.
What are your thoughts on the matter?
Big banks are beginning to bail out wealthy people and firms.
What can be done about it and what should be done about it?
The Chinese tycoon is only one example, but what will happen when heavily shorted stock begin to squeeze again?
Leave your thoughts in the comment section below and share this article to raise awareness to the injustices in the markets.
Peabody Margin Call – Global margin calls will happen in every corner of the financial sector
Leading global pure-play and Fortune 500 company Peabody received a $534 million margin call.
The Australian benchmark coal price is up more than 400% in the past 12 months, hitting $425.
Peabody was not prepared and got slammed with a $534 million margin call.
The sum is more than half the cash the company had at the end of December 2021.
Margin calls are beginning to happen left and right and we’re going to discuss it.
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Margin calls in the coming weeks
The Russian-Ukraine conflict is affecting global markets sparking margin calls in every corner of the finance sector.
Russia’s war in Ukraine has further fueled a rally in coal driven by a squeeze on global energy supplies.
Chinese tycoon Xiang Guangda is currently facing an $8 billion margin call after Nickel prices skyrocketed to $100,000 per ton.
Xiang Guangda tells banks he has no intention in reducing his positions.
The short seller is requiring a coordinated bank bailout including the participation of JP Morgan.
The London Metal Exchange halted trading in nickel on Tuesday morning after prices spiked as much as 250% in two days, driven by brokers rushing to close out short positions after holders of bearish bets struggled to make margin calls.
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.
Morgan Stanley’s next gen emerging markets fund (MFMIX) has also been exposed to Russia with nearly $16.6 million frozen due to Russian sanctions.
Schwab’s fundamental emerging markets large company index ETF (FNDE) has also been affected with 12.7% being exposed to the Russian stock market.
Peabody receives a 10% loan from Goldman
Goldman Sachs steps in with 10% loan – Peabody Margin Call
Peabody shares plunged 17% after announcing the margin call, taking a chunk out of the gains they had made in recent months as the coal market boomed.
Margin calls could increase if the coal market moves higher.
Regulators take Morgan Stanley and hedge funds to court – Subpoenas
Regulators are taking banks such as Morgan Stanley and multiple hedge funds to court.
Financial institutions have been receiving subpoenas ordering them to court after several investigations, more on that below.
Retail investors have been demanding the SEC and Justice Department take action for decades now.
Will this new wave of retail investors be the ones to spark change in the markets?
Welcome to Franknez.com – today’s market news is surrounding the crackdown of banks and hedge funds. Be sure to stick around and join the discussion in the comment section of the blog below.
Let’s dive right into it!
Regulators are taking financial institutions to court.
I will be updating this article as new information arises so be sure to join the newsletter to get notified.
Some of the biggest banks and hedge funds are getting dragged to court.
And while not all of the information is known yet, here’s what we do know.
Morgan Stanley & Goldman Sachs get subpoenas
Morgan Stanley and Goldman Sachs get subpoenaed
Regulators are investigating communications between banks and hedge funds.
Morgan Stanley, based in New York is among the many firms reported to have received subpoenas.
Now these banks are receiving subpoenas; a court order to come to court.
Subpoenas may be used in both criminal and civil cases but often result in jail time or heavy fines if ignored.
Why are hedge funds and banks going to court?
Regulators are examining whether bankers might have improperly tipped hedge fund clients in advance of large share sales.
The report also says regulators are investigating whether banks also alerted favored clients ahead of public disclosures of trades, and if such information benefited the fund.
The Department of Justice is also investigating the matter.
We’ve seen this type of strategy play out in the past with GameStop and AMC early last year.
Insiders communicated about halting retail trades as they sold off their entire AMC and GameStop positions.
Meanwhile, retail investors were left helpless unable to buy the assets.
Further price surges from ‘meme stocks’ would have resulted in catastrophic losses for hedge funds and banks alike.
The Fed’s just published a letter under SR 21-19 to supervise and assess the actions that led to the Archegos default by examining financial institutions and their relationships to investment funds.
The Federal Reserve is issuing this guidance to limit risk management.
SR 21-19 is intended for banking organizations with large portfolios and relationships with investment funds, such as hedge funds.
Some of you in the community wanted me to explain what this letter means and so I’m going to be breaking it down for you today.
Welcome to Franknez.com – today’s market news has to do with the Fed’s cracking down on banks and hedge funds. Interesting things are happening at the end of the year, aren’t they?
Let’s get started!
Speaking of interesting things happening.
The ape community has attracted the attention of the SEC, mainstream media, and now the Federal Reserve.
It’s worth noting that progress is progress, no matter how slow or long it takes.
Why is SR 21-19 Significant?
This federal piece of document is significant for many reasons.
It highlights lack of transparency in the markets.
The letter acknowledges a relationship amongst financial entities and confirms strategic involvement.
It expresses how overleveraging positions pose a major risk towards meeting debt obligations.
And finally, SR 21-19 touches topic on providing proper margin terms to these institutions.
And on top of that, a hefty fee for withdrawing their investments.
New Margin Call Terms Are on The Horizon
It is unclear what the margin call terms will be for these overleveraged financial institutions.
However, the letter states that they will be ensuring that these institutions receive the appropriate margin requirements.
They will either avoid inflexible and risk-insensitive margin terms or extend close-out periods.
Risk-insensitive meaning appropriately raising the margin requirements dependent upon how overleveraged a financial institution is.
Hedge funds shorting AMC and GME stock have amounted an overwhelming number of borrowed shares to short the stocks.
Yet these stocks have remained leveled due to the strength of retail investors.
The feds are about to impose massive margin requirements on overleveraged hedge funds.
Now, we won’t know how long this process will take.
What we do know is that the federal government isn’t taking hedge funds lightly anymore.
And if the appropriate margin terms are too high for hedge funds to maintain, then they’ll be forced to close short positions.
Getting To the Bottom of Synthetic Shares
Will the feds come across the millions of synthetic shares these overleveraged hedge funds have created?
It will be a massive surprise if they don’t.
See, the feds are requiring their supervisors to receive adequate information to fully understand the risks of the investment funds they are investigating.
This includes positions and counterparty concentrations, or a specific sector in which two financial entities are specifically focused on.
Failing to meet transparency will mean the feds will take action on setting conservative terms between the parties.
Identifying synthetic shares in the market is a rabbit hole the feds themselves will have to go down.
My suggestion is for the community to push the Department of Justice to investigate these synthetics.
Raising awareness to these problems in the market is key to sparking a MOASS.
2022 Is Going to Be an Interesting Year for Hedge Funds
Hedge funds face more scrutiny than ever before in history.
They have created system risk and pose a threat to our businesses and economy.
Hedge funds never saw a community of activists fight them for a fair market.
Retail investors caused Archegos to default and Melvin Capital to lose billions of dollars resulting in a life-line from Citadel Securities.
Melvin Capital has stated that they’re out of the game.
In short, a margin call occurs when the value of an investor’s brokerage account falls below the broker’s required amount.
This is when a broker demands that an investor deposits additional money into their account so that it meets the minimum requirement.
A margin call is usually an indicator that a security (asset) held in the margin account has decreased in value.
When a margin call occurs, the investor must either add funds to their account or liquidate (sell) some of their assets in that account.
Why does a margin call occur?
It may occur when an account runs low on funds usually as a result of a losing trade
A margin call occurs when a demand for additional capital is required to meet the minimum margin requirement
Brokers may force traders to sell assets, no matter the current market price, in order to meet the margin requirement if the trader does not deposit the funds
If you’re a new retail investor and have recently joined the ape community then you’ve more than likely heard the term margin call before.
A margin call is basically a 50/50% chance a short squeeze may occur on the spot.
However, even if hedge funds are able to keep enough capital in their margin accounts to keep them afloat, at some point they’ll have to cave in.
In this video, Bloomberg News discusses Gary Gensler, the new SEC chairman’s concerns of overleveraging and manipulation in the stock market.
This five minute video is important to log because it demonstrates and acknowledges the concerns in the market.
Perhaps the SEC was incompetent in the past to say the least. But it looks like we might be looking at some change here community.
And although this particular video was published on May 6th, below are some things Gary Gensler is already proposing in order to protect retail investors and the overall market in general.
SR-NCSS-2021-002
This proposal from the SEC is massive if it gets approved.
The SEC has heard you and they’ve been looking into hedge funds overleveraging their positions in AMC stock and other ‘meme stocks’.
This proposal would allow an automatic margin call system to margin call hedge funds with overleveraged accounts.
This margin call system will essentially target short sellers on a daily basis and identify whether they are required to raise margin minimums or liquidate their positions.
This proposal was delayed after its initial approval date.
However, as of today the proposal has gone through and should be in effect in the coming weeks.
However, as long as short sellers are able to keep up with their margin requirements then this regulation is rather neutral.
A lot of these rules being put into place play in our favor the more money short sellers lose.
Total Return Swap AMC
The SEC and FINRA have gotten together to review the activity of ongoing overleveraging in the stock market.
Hedge funds could soon face total return swaps per Gary Gensler, SEC chairman.
In a total return swap, the payer (hedge fund) must pay the interest on the underlying assets, plus any appreciation in the market value of the asset.
This sounds a lot like shorts paying all short borrow fee owed on top of the market value of naked shares they’ve traded.
13-F filings and short selling disclosures
Citadel margin call – SEC cracks down on hedge funds
There’s a strong possibility that hedge funds also face 13-F filings. This filing will provide the SEC with insight on equity and dark pool disclosure.
Everything now seems to be falling right into place despite the continuous short laddering.
This means that if they are unable to keep the minimum cash required in their margin accounts, they’ll be required to liquidate some or all of their positions!
This would create massive price action to trend in an upwards position.
We know that short sellers are losing millions of dollars every day.
Ladies and gentlemen, this is simply a waiting game.
The point is going to come where they can no longer afford to be negative each day.
This movement is about to get on a whole other level of excitement.
The fundamentals to this AMC short squeeze have not changed.
All retail investors will have to do is hold until short sellers cave in and close their positions willingly, or brokers margin call them.
Charles Schwab raises margin requirements
AMC Margin Call
The broker is adjusting 100% margin requirements for AMC on all long positions, and 200% on short term positions.
As for GameStop, the margin requirement is 100% on all long positions and a whopping 300% on short term positions.
All this essentially means is that short sellers will be required to have more cash at hand as collateral.
So, not only are hedge funds losing a lot of money every day but are now being required to put enough cash into their accounts to cover their entire positions if need be!
You know what happens if they can’t cover right?
That’s right, margin call.
Instant liquidation of their accounts resulting in the MOASS we’ve all been waiting for.
Margin calls will result in a short squeeze
At first we might experience what’s known as consecutive gamma squeezes.
These are usually triggered by high volume in the market due to expiring call options in the money or very high purchasing days.
As more short sellers and hedge funds with larger short positions in AMC stock begin to cover, we will begin to experience the beginning of a short squeeze.
A short squeeze could last several days to several weeks.
This is one of the biggest AMC news yet regarding the stock.
It’s been delayed but should go into effect this new year.
The NSCC is also requiring that short sellers have more cash at hand to limit overleveraging their positions.
When should I exit my position in AMC?
I wrote an AMC exit strategy guide to help the community make a strategized decision on how to sell when AMC squeezes.
I do want to relay that this is only my take on it.
Many of you already have your own exit strategies, I understand this.
Regardless, it’s there if you need it and would like insight from a different perspective.
And lastly . . .
If you gained value from this article be sure to share it with the rest of the community.
Thank you to everyone publishing this information on Facebook, Twitter, Reddit, and on Discord groups.
If you would like to support the functionality of the blog, you can do so on Patreon where you will also gain access to exclusive Frank Nez content such as my stock and crypto purchases.
#KenGriffinLied is trending number 1 on Twitter right now. A document was just released showing messages between Vlad and Robinhood COO, Gretchen Howard, in regards to Citadel making demands on limiting PFOF (Payment For Order Flow) back in January.
The conversation then shows Vlad stating, “maybe this could be a good time for me to chat with Ken Griffin”.
Ken Griffin lied under oath by stating Citadel had no communication with Robinhood in regards to the halts on AMC and GameStop back in January.
Hedge funds have since been overleveraging their short positions while manipulating AMC and GameStop’s stock price through the illicit use of naked shorting and dark pool trading.
Retail investors are now looking at regulators to take serious action.
Welcome to Franknez.com – I’ve said it before and I’ll say it again. You are creating change this very moment. Lets discuss what we need to do to end this market manipulation once and for all.
Lets get started!
Will The SEC Protect Retail Investors From Market Manipulation?
But before I do, if you don’t know who Ken Griffin is, he’s the CEO to the Citadel Securities. This is the hedge fund who’s been betting against AMC and GameStop for months now.
Citadel is what you get if our government’s power was not divided into three branches. See, the problem here is Citadel LLC is a hedge fund, Citadel Securities is a market maker, and Citadel Connect is a dark pool.
You essentially have a tyrant making all the rules for themselves.
Now, many of you have been tagging the SEC, Gary Gensler, and even Potus on Twitter. Now it’s time for the community to see what measures are taken by our government leaders to protect its people.
In the transcript above, you can see the initial conversation between Gretchen (Robinhood COO), and Vlad Tenev (Robinhood CEO). Shortly after we see another transcript confirming the communication between Robinhood and Citadel..
Jim Swartwout is the President and CEO of Robinhood Securities. In the transcript above he states, “you wouldn’t believe the convo we had with Citadel, total mess.”
And get this, after 9 months of silence on Twitter, Citadel has gone on to lie again stating this is conspiracy theory. Although the transcripts show evidence in plain ol’ English.
The community is fighting for change. Citadel has yet to address their abuse of power through naked shorting and the usage of dark pools to mask bullish moves in the market.
Here is the footage of Ken Griffin lying about his team having any communication with Robinhood during the halts back in January.
The cat is out of the bag! Community, we must continue to fight for our rights for a fair market. The SEC has the power to liquidate these overleveraged hedge funds from their positions.
We must demand it. Only then will AMC and GME squeeze. This play, it’s your birthright.
Fox Business On Ken Griffin
In a recent interview with Trey’s Trades, Charles Payne and Trey discuss the matter.
Charles pull up some information confirming about 60% of AMC was traded through dark pools to which he asks Trey if it’s possible AMC’s share price potential could be higher if it did not trade through dark pools.
And of course the answer is that both AMC and GameStop could reach higher potentials if the market was being run based on supply and demand without any dark pool manipulation.
Ken Griffin Lied FOX BUSINESS
My favorite line is when Charles says, “diamonds are created over a long period of time though a whole lot of heat and a whole lot of pressure, are the apes up for it”.
This is why I’ve grown to really like Charles Payne. He’s using his platform to fight corruption in the markets.
Charles Payne has given apes the mainstream platform we need and I’m glad Trey is the ape in our community to pass the message.
Time To Get Loud
This is the moment we’ve all been waiting for. Will you fight for what’s yours? Share this article with the community, tag our government leaders. It’s time for the MOASS.
