[fny]

Can someone provide color as to why this was such a discretionary process? If I get a call from my broker, and I don’t post collateral, I’m liquidated immediately. I’d at least expect a fixed date which triggers liquidation if you catch someone picking their nose.

Also, I find it hilarious that this whole thing was bound to blow up after the recent Chinese regulatory crackdown anyway.

[rtkwe]

There's the saying of "if you owe the bank $100k you have a problem but if you owe the bank $100 million they have a problem." You're small enough fish you don't have a nearly dedicated person who's bonus and compensation is tied to keeping you from taking your pile of cash and going somewhere else. Individually your business and risk mean basically nothing to your broker most likely.

[huitzitziltzin]

Do you have multiple billions of dollars at stake with the broker?

If yes: he might annoy you enough with his impertinent margin demands that you go elsewhere, which makes his boss Very Unhappy.

If no: his boss has never heard of you.

Also it sounds like liquidating many of these positions would be no easy feat, when they represented 3-5 days mean trading volume in the underlying asset.

[rtkwe]

In a quote from the report it says it would have taken two weeks to a month to liquidate their positions just at Credit Suisse.

[fny]

If I have multiple billions at stake, I would assume my broker would be even more demanding of responding within a time frame. Note, I'm not calling for automatic liquidation, but rather some timeframe wherein discussions must be held or else the posted collateral is seized.

[rtkwe]

The problem there is at that level you're also a significant source of money for both the company and whoever gets bonus/commission on the money you bring in so suddenly there's a lot of reason to not make you annoyed enough to take your business elsewhere.

[tedunangst]

They had a contract for static margin and wanted to change to dynamic margin. If your broker changes their terms of service, they likely won't immediately liquidate you pending approval.

[rtkwe]

I think from my reading of the article that the dynamic margin was a compromise that would require less margin from them than what the standard formulas would require. Business balked at requiring the actual $1B margin that the original contracted margin method would require so they were trying to switch to a new one.