Page images
PDF
EPUB

D.

STATEMENT OF COMEX CLEARING ASSOCIATION, INC.

I. Scope of Statement

Set forth below is a chronology of the activities

of the Association relating to silver futures transactions from August 30, 1979 through March 1980. This chronology, of necessity, primarily deals with meetings of the Association's Board of Directors. However, during the period there were regular, extensive and continuing communications: (a) among the Chairman of the Board, the President and Counsel for the Association; (b) among members of the Board; (c) between the Chairman and/or President of the Association and various members of the Association; (d) between Association officials and Comex officials; (e) between Association officials and officials of other clearing organizations; and (f) between Association officials and members of the CFTC staff. These communications were for the purpose of obtaining and reviewing pertinent information and exchanging ideas and views for the purpose of formulating recommendations to the Board.

II. Role of Clearing Association

In reviewing the following chronology, it must be kept in mind that the Association is a separate and independent corporation. Its primary responsibilities are to clear and to endeavor to assure the financial integrity of transactions entered into on or subject to the by-laws and rules

of Comex.

The principal tools used by the Association to assure the financial integrity of such transactions are setting limits on the size of net positions which may be carried by Clearing Members with the Association and setting the amount of original margin which must be deposited by Clearing Members with the Association. In this regard, it is necessary to understand that Comex original margin rules and the Association's original margin requirements differ both in purpose and in the parties to which they are addressed.

As stated above, the Association is concerned primarily with assuring the financial integrity of transactions which it clears. In contrast, as described in Section III of the Comex Statement, Comex, in setting minimum original margin levels, must take into account many other factors. Accordingly, original margin rates estab

lished by the Association and minimum original margin rates adopted by Comex are often different.

The Comex rules specify the minimum original margin which must be collected by a futures commission merchant ("FCM") member firm from all its customers in connection with transactions to be entered into on or subject to the rules of Comex. Even though an FCM's customer may be a member or another member firm of Comex, the FCM must collect and retain not less than the Comex mandated

minimum original margin.

FCM's, of course, may (and often

do) require greater original margin from their customers than the minimum rates fixed by Comex.

In contrast, the Association's original margin requirements are imposed on Clearing Members based on the net positions carried with the Association. If such Clearing Member has both customer and proprietary positions, they are treated separately. Thus, ordinarily, Comex will not have margin rules applicable to positions carried by a Clearing Member of the Association for its own account. Association, of course, would collect original margin from such Clearing Member on its own positions.

The

In addition, the Association endeavors to assist Comex in fulfilling its self-regulatory obligations by furnishing certain information to the Comex compliance department and the Control Committee.

[blocks in formation]

The Association has noticed numerous recent statements in the press in which an inquiry was made as to what did "x" do to prevent a situation from occurring (depending on who was making the inquiry, "x" could be the CFTC or a contract market).

The Association believes that this question

totally misses the mark because it suggests that the only available choice is between taking action and thereby

solving the problem or doing nothing and thereby permitting

an undesirable situation to develop or continue. In the

Association's judgment, taking action may exacerbate a situation and not taking action may ameliorate a situation. Accordingly, in the abstract, taking action and refraining

from taking action have equal merit.

Thus, the Association

believes that the proper inquiry is (a) was the body in question aware that a problem existed, (b) did it analyze the problem and seek to obtain the necessary facts, (c) did it have the authority to take any action determined to be necessary, and (d) did it make a reasonable decision in the light of the circumstances and available information. Any other approach encourages and rewards "doing something" regardless of the consequences.

[blocks in formation]

The chronology of the Association's activities dealing with silver from August 1979 through March 1980 is

as follows:

1.

August 30, 1979 Adjourned Regular Meeting

-

of the Board. A request from Clayton Brokerage Co. of St. Louis to increase the Association's 6,000 contract position limit for any one maturity of a commodity was considered and

deferred.

2.

September 6, 1979

Special Meeting of the

Board. Original margin on silver contracts was increased

effective on and after September 10, 1979 as set forth on Attachment A.

[merged small][ocr errors][merged small]

Board. Original margin on silver contracts was increased effective on and after September 21, 1979, as set forth on Attachment B. The Board also adopted the resolutions set forth on Attachment C to implement Comex Original Margin Rule Q which has been adopted by Comex on the morning of September 18, 1979. In addition, the request by Clayton Brokerage Co. of St. Louis (referred to in item 1) was denied.

the Board.

-

4. September 27, 1979 Special Meeting of Consideration was given to changing original

margin rates for silver. No action was taken.

[merged small][ocr errors][merged small]

Board. The Board reviewed original margin requirements and in connection therewith, considered a letter from Engelhard Minerals & Chemical Corp. ("Engelhard") requesting that the Association impose "super" original margin on non-hedge silver positions which would increase periodically until original margin equalled 100% of the value of the contract. The Board determined not to take action on the Engelhard proposal at that time and adjourned the meeting to October 3, immediately fol scheduled 8:00 A.M. meeting of the Board of Gove:

consider the silve

Comex which had been called to

« PreviousContinue »