Investors to sue Moscow Exchange over stoppage of WTI oil trading - page 10

[Sergei Lebedev]

If this is true and the Central Counterparty on the Exchange is allowed to hold a non-zero market position, i.e. essentially 'making money' on perceived rate changes, then of course it is wild. In our corrupted state this completely equates Mosbirzha = forex kitchen.

This then explains not only this case but also older cases such as the -10% drop in Brent on Dec 25th 2018 when the price dropped 10% below the closing B level at ICE before reversing.

[Sergei Lebedev]

Those who are now suing should essentially sue Mosbirzha for disclosing who their counterparty was, and having considered historic crimes such as this and 25.12.2018 to get that market participant forcibly liquidated.

[Реter Konow]

Sergey Lebedev:
If this is true and the Central Counterparty on the Moscow Exchange has the right to hold a non-zero market position, i.e. essentially 'make money' on perceived rate changes, then of course it is wild. In our corrupted state this completely equates Mosbirzha = forex kitchen.

And then it explains not only this case, but also older cases such as the -10% dip in Brent oil on 25th December 2018, when the price dipped 10% below the B closing level at ICE before reversing.

1. Central Counterparty is a western invention and exists on other world exchanges.

2. Its role in trading is ambiguous. On the one hand, it centralises clearing, ensures liquidity and protects against wild spikes; on the other hand, it is involved in managing the trading process on a technical and financial level.

Some will say"no! It is not involved!"OK, let's look at it logically:

• How can he not participate if he is constantly forming a "super position" (the sum of opposing positions opened against traders).
• How can that position be zero if he is a participant in every trade? OK, let's say the position is balanced - there is a seller against each buyer, and he is only a middleman. BUT!
• there is NO RULE NOT to open an odd number of positions(where is it?). Let's take a situation where there is an even number of positions - then, for each buyer there is a seller, and the CC can only be an intermediary, but if there is an odd number of positions, and the CC has its own position against each trader, how can it correct an imbalance of its positions?
• An odd number of positions creates an imbalance of two CC balances - positive and negative, and how can it not interfere? Can the CC remain indifferent when traders unequally open positions in different directions and pull the price without taking into account its balance? Not even theoretically.
• How can a CCP resist the ruinous behavior of traders who do not hold positions evenly apart and pull prices without regard for its balance? -- By flooding them with liquidity so that they cannot move the price, but at the same time, it adjusts the balance itself from the current disequilibrium toward equilibrium.
• That is, the CC has to constantly balance its super-position, otherwise, it will go bankrupt.

These are my assumptions.

What is surprising is not even the presence of the CC and its participation in the trade, what is surprising is that no one sees this "tyrannosaur", although it is not even hiding...

We are talking about futures. I think in equities, trading without CCs.

[Sergei Lebedev]

Peter, no you are wrong - CME has central clearing, but it is ALWAYS neutral and has no market position. That is, in essence, the CME 'breaks' the transaction between the participants in order to enforce obligations to the 2nd party if and only if there is a temporary technical margin shortage on the 2nd party. But every futures transaction always has both parties, and those parties are NOT SMEs, but real participants.https://www.cmegroup.com/education/courses/clearing/what-is-clearing.html

[Sergei Lebedev]

By the way from everything Roman quoted here in the strict sense does not mean that Mosbirzh allows its CC to form a market position. That's why I wrote 'if'.

It really needs to be sorted out through the courts, if our exchange siao forex kitchen, they will not admit it without an investigation.

[Sergei Lebedev]

By the way from everything Roman quoted here it does not strictly follow that Mosbirzh allows its CC to form a market position. That's why I wrote 'If'.

If our exchange has become a forex kitchen, they will not admit it without an investigation.

[Реter Konow]

Sergey Lebedev:
Peter, no you are wrong - CME has central clearing organised, but it is ALWAYS neutral and has no market position. That is, in essence, the CME 'breaks' the transaction between the participants in order to enforce obligations to the 2nd party if and only if there is a temporary technical margin shortage on the 2nd party. But every futures transaction always has both parties, and those parties are NOT SMEs, but real participants.https://www.cmegroup.com/education/courses/clearing/what-is-clearing.html

Look, I can't say anything against Mosbirch, I've never traded there, but I can say that ALL my suspicions about CC's involvement started with trading on CME, - on futures there.

I'm sure the principles of stock trading are different, but futures is a CC with its super position, flooding traders with liquidity and artificially regulating its balance sheet. Such are my personal beliefs.

[Реter Konow]

I will admit ALL my beliefs about the CC are wrong if a clause in the Exchange rules is found that the CC does NOT have the rightto unilaterallyopen traders'positions (e.g. a buyer came in without a seller and he opened a position for him).

If a buyer comes in and places a market order for 1 futures contract and the CCP immediately sells him the contract - he has become his personal counterparty bypassing the REAL seller from the market. In such a case, the balance of the CCP's position and the buyer's balance will be inversely proportional and there will be no third party to balance whoever comes out on top.

If the CCP does NOT have the right to open a position with the trader unilaterally and waits for a third party with an opposing bid (from the trader's side), the CCP position will remain neutral. If he opens the trader's position with the expectation of a future appearance of his opposing party - he opens it unilaterally and becomes an interested party.

Therefore, the main question is whether the CC can open positions on traders' bids regardless of the existence of their actual counterparties (traders with opposing bids).

If it can, I am right, if not, I am wrong.

[Реter Konow]

OK, I admit that my judgement is crude and technically may be wrong. The scheme is probably a little more complicated.

Let's assume that the CC is clean because the exchange is regulated by the state. Suppose the CCP has no right to form its market position and open positions without real counterparties from the traders. That is - the CCP is always only an intermediary.

However, we know that there is such person in exchange trading as MM (Market Maker). Who is it?

1. A participant which enters into a special agreement with the exchange.
2. A participant who provides bilateral market liquidity (buy/sell orders in the market).

How is market liquidity provided? -- The MM piles in limit orders both ways. So IF a buyers-only crowd comes in and there is no single seller, the CC will quietly open positions to all those buyers, and MM will act as their common seller. In that case, the super position is formed not by the CC, but by the MM, which has a contract with the exchange. Both are formally clean before the law, but the essence of trading does not change.

And the point is that the uneven appearance of buyers and sellers among traders creates imbalance of MM super-position, which he balances with legal trading manipulations (without jumping and gaps), by quietly trading against himself and changing the proportions of his liquidity in the market. In other words, he's a regular player, just a VERY big one.

Same Fedora, in a different sundress...

[Renat Akhtyamov]

Sergey Lebedev:
Peter, no you are wrong - CME has central clearing, but it is ALWAYS neutral and has no market position. That is, in essence, the CME 'breaks' the transaction between the participants in order to enforce obligations to the 2nd party if and only if there is a temporary technical margin shortage on the 2nd party. But every futures transaction has both parties at all times, and those parties are NOT CMEs, but real participants.https://www.cmegroup.com/education/courses/clearing/what-is-clearing.html

CME Group provides clearing services to clients worldwide through our CME Clearing Centre, which enables market participants to significantly reduce and manage risk.

A clearing centre such as CME Clearing is an intermediary between buyers and sellers in the futures market. As intermediary or counterparty for each trade, CME Clearing acts as buyer for each seller and seller for each buyer for each trade.

By acting as the counterparty for each trade, CME Clearing helps you mitigate counterparty risk by maintaining a consistent book and risk-neutral position. You don't have to worry about the other end of your trade failing because CME Clearing is always on the other end.

CME clearing is constantly improving its services and safeguards to best serve the evolving exchange-traded (OTC) and over-the-counter (OTC) markets. We provide a set of flexible clearing services that take into account existing market structures for interest rates, agriculture, energy, equity indices, foreign exchange (FX), weather, real estate and metals, as well as OTC instruments, for example. Currency undeliverable forwards (NDF) and interest rate swaps (IRS).

With a wide range of clients using our markets, everyone finds security in CME Clearing as an industry leader. CME Clearing maintains a risk management structure and financial guarantees to provide stability to market participants despite changing market conditions.






CME Clearing's financial guarantees are designed to:
- Assess potential market risks
- Prevent the accumulation of losses
- Manage concentration risk among clearing participants
- Carefully monitor the financial integrity and capabilities of clearing participants
- Ensure sufficient resources are available to cover future liabilities
- Result in rapid detection of financial and operational weaknesses
- Allow rapid and c

CME Clearing has developed its proven risk management policies and financial guarantees to meet market needs, including the growing OTC market, by offering a solution that:
- Complement existing trade execution systems
- Clears an extensive and expanding product line
- Ensures effective risk management, including portfolio margin.
- Provides risk management tools, such as pre-trade credit controls that allow clearing firms to limit positions taken by any particular client

The resulting centrally cleared environment brings many benefits to the market, including market price transparency, market metrics, risk management practices and financial guarantees. As the central clearing counterparty guarantees the execution of all trades, neutrality is applied to each transaction with uniform risk management standards.
,


Clearing Members
.

Clearing participants provide clients with access to CME clearing and must be registered as a futures commission merchant (FCM). The FCM guarantees the client's financial obligations to the CME. The collateral deposited by clients must be segregated from the FCM's own funds.
,


Bond Performance
.

CME Clearing collects performance bonds (initial margin) on a daily basis, ensuring the risk of potential future losses on positions, and carries out a daily assessment of all open positions in the market to ensure that there is no accumulation of debt in the market.

Performance bonds are bona fide deposits to guarantee the performance of open positions against potential future losses. Bond performance requirements ensure that at least 99% of market volatility for a given historical period is covered. Requirements are recalculated twice a day for most products and at least once a day for all products.

Clearing participants collect collateral from their clients and CME Clearing collects collateral from clearing participants. Bond performance requirements vary by product and reflect changes in market volatility.
,


Asset Revaluation
...

Mark-to-market prevents an accumulation of risk on positions. A clearing participant's positions are marked to market in each clearing cycle, resulting in a cash flow of gains and losses across the portfolios of clearing participants and clients.

The mark-to-market must be met in cash; however, the performance requirements of the bond can be met with cash or non-cash collateral. To meet the needs of our clearing participants and end clients, CME Clearing accepts a diverse portfolio of assets as collateral for bond deposits.