ICE Clear Europe Limited Approves Rule Change for Collateral & Haircut Procedures: "allocated gold would give ICE Clear Europe an interest in specific bars of gold, rather than an interest in shared pool of bars of gold."
Only 'DRS'd' Gold counts as collateral, no more IOUs!
Wut Mean?:
- ICE Clear Europe is registered to clear security-based swaps and requires its Clearing Members to transfer assets, like cash, as collateral to manage risks from positions they clear.
- This collateral is termed "Initial Margin" and "Guaranty Fund requirements", collectively referred to as "Permitted Cover".
- The Procedures outline how ICE Clear Europe handles Permitted Cover, which includes setting eligibility criteria for assets, valuing them, and applying haircuts.
- The proposed rule change concerns the criteria to determine an asset's eligibility as Permitted Cover as all assets must be highly liquid with a wide market of buyers and sellers.
At present, gold is accepted as "Permitted Cover" in two ways:
- As allocated gold bullion, where ICE Clear Europe directly owns specific gold bars.
- As unallocated gold bullion, where ICE Clear Europe has a claim on a pool of gold bars, without owning specific bars.
- The proposed change seeks to eliminate the unallocated gold (NON-DRS'd) option.
- With this amendment, ICE Clear Europe would only recognize gold transferred from an unallocated account to an allocated account in their name.
Why am I making the DRS comparison?:
When gold is "allocated," it means that specific bars (with specific weights, purities, and serial numbers) are set aside and designated for a particular owner or account. The owner has a direct property right to those exact bars, not just a general claim to a certain weight of gold. This is similar to direct registration of securities, where specific securities are registered in the name of the actual owner rather than being held in a pooled or "street name."
In contrast, "unallocated" gold is more like a claim or entitlement to a certain amount of gold, rather than to specific physical bars--an IOU!
Rule Approved:
TLDRS:
- ICE Clear Europe Limited; Order Approving Proposed Rule Change for Collateral & Haircut Procedures: "allocated gold would give ICE Clear Europe an interest in specific bars of gold, rather than an interest in shared pool of bars of gold."
At present, gold is accepted as "Permitted Cover" in two ways:
- As allocated gold bullion, where ICE Clear Europe directly owns specific gold bars.
- As unallocated gold bullion, where ICE Clear Europe has a claim on a pool of gold bars, without owning specific bars.
- The proposed change seeks to eliminate the unallocated gold (NON-DRS'd) option.
- With this amendment, ICE Clear Europe would only recognize gold transferred from an unallocated account to an allocated account in their name.
- Only 'DRS'd' Gold counts as collateral, no IOUs!
- The FDIC noticed that some banks aren't correctly reporting the amount of deposits they have that aren't covered by federal insurance. Some banks mistakenly think that if a deposit is backed by assets (like collateral), it doesn't need to be reported as uninsured.
- This isn't right! The deposit's status doesn't change just because it has collateral.
- When banks incorrectly report uninsured deposits, it could create a perception in the market that these banks are more stable than they actually are.
- Banks that incorrectly report uninsured deposits might face liquidity challenges in extreme circumstances, where depositors simultaneously demand their funds.
- Reminder, while banks have the liquidity fairy, 'we' get the promise of 2 more rate hikes this year, Atlanta Fed President Raphael Bostic yet again enrichens himself inappropriately from his position.
- To fix one end of their mandate (price stability) from the inflation problem they created, the Fed will continue sacrificing employment (the other end of their mandate) to bolster price stability by continuing to raise interest rates--causing further stress to businesses and households.
- I believe inflation is the match that has been lit that will light the fuse of our rocket.
