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How the Comex works
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Thread: How the Comex works

  1. #1
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    Default How the Comex works

    A. Douglas

    We talk of longs and shorts but when it comes to the current front month contract we should talk of buyers and sellers because at that point there must be a delivery process instigated.

    The current front month contract is SEP. Anybody who held contracts long going into what is known as "First Notice Day" (August 31 for SEP) is now OBLIGATED to take delivery and anybody holding contracts short is OBLIGATED to make delivery to the longs. (There can always be agreements to settle in cash but only if both parties agree but the obligation is for delivery).
    If you don't want to take delivery or you don't want to make delivery you have to roll or sell or cover your position BEFORE First Notice day.

    The process is that if you are still holding a long contract on First Notice day you are "standing for delivery". You have to pay in full for your contract to your broker.
    The sellers (the shorts) must now issue "delivery notices" to inform the buyers that they will deliver bullion to them.

    Let's take SEP. On first notice day there were 3,002 contracts long and the same number short. But those holding the longs don't know who the holders of the 3002 short contracts are. So the delivery notice process is to match up the buyers with the sellers.

    Let's say you are holding 100 contracts. You need some one to tell you where your silver is going to come from. So the sellers of the 3,002 contracts have to issue a delivery notice to the clearing house to let them know they are a seller and they are ready to hand over the appropriate amount of silver.

    The sellers have 30 days to issue these notices. In theory the holders of 3,002 should ALL have received a delivery notice by the end of the 30 day notice period (Last Notice Day).

    These are assigned by the clearing house to the longs who are said to have "stopped" the notice while the seller has "issued" the notice. The delivery notice is sent by the clearing house to your broker. The clearing house assigns them in proportion to the holding.

    Once you have the delivery notice your broker will then transfer the money you have paid in full for your contract to the account of the seller at his broker. Now that he has confirmed his readiness to deliver and the money has been transferred you will then receive a "Warehouse receipt" with specific bar numbers and weights and with that you can collect your metal and take it away from the designated Comex depository.
    You can not take delivery with a "delivery notice" you have to pay the money and get the warehouse receipt.

    Until the warehouse receipt has been issued the silver storage and insurance is paid by the seller. So they should want to start the process as soon as possible and issue delivery notices on the first notice day. Delaying issuing delivery notices indicates that the sellers don't have metal in the "registered inventory" of the Comex.

    If a delivery notice is issued and money is transferred the Warehouse receipt MUST be issued but if the seller doesn't have registered metal he can not enter specific weights and serial numbers on the warehouse receipt because he doesn't have any warehouse metal. So the seller delays issuing the delivery notice (which he can do because he has 30 days to issue). He then has to find some metal to put on the exchange or see if he can lease metal from an investor who has metal on the exchange or see if he can offer cash to buy a delivery notice from a long who has already received one.

    So a "dearth of delivery notices" means that the sellers don't have the bullion available because if they did the notices would be instantly issued on First Notice day. For example if we had seen 2600 delivery notices issued on first notice day this would have been bearish because it would mean there is plenty of bullion to meet deliveries and a large proportion is being offloaded to the buyers at the first opportunity.

    Taken to the limit, if the seller FAILS to issue a delivery notice by last notice day then that is a "default". The seller is obligated to deliver and he has failed in his obligation to start the transfer of metal from him to a buyer.

  2. #2
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    Thumbs up I am hoping for a default.

    deefault, deefault, deefault!

    Hip hip hurr-ray!

    SILVER

    deefault, deefault, deeefault!
    "I foresee little future in 'the price of silver', I see a huge future for 'the price in silver'." - heartbone
    "The truth is called hate by those who hate the truth." - K

  3. #3
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    Default

    Quote Originally Posted by silverheartbone View Post
    deefault, deefault, deefault!Hip hip hurr-ray!SILVERdeefault, deefault, deeefault!
    I keep seeing these things about a shortage, or a default at the Comex, but I never see a scrap of substance behind them. Never.

    If you want to take delivery of some metals, let me know and I will promptly arrange it for you. Also, you will be taking delivery at a much smaller cost than you would from your local dealer. Really! The first time I ever hear, experience, or even get a whiff of a default or a shortage, I will be the one screaming long and loud to the rafters about it. Until then the stories are just a bunch of smoke. If you want to talk to me about delivery issues, I would be happy to pass on my thoughts, but fair warning, I'm one of those people who is limited to facts, so wild eyed stuff will not be a part of the conversation.

    Wanna' take delivery? Call me and I'll help. If the stories we hear just happen to turn out to be true, you will make a bazillion dollars on the deliveries I secured for you. Until then, don't tell me what your theories are, tell me how much you want. Whoever I am helping with a delivery will get the first call before I tell the rest of the world when I hear the exchange say default.

    Matthew C. Shelley
    Commodity Broker

    As always: Trading in futures and options is very high risk investing. You can lose all or more of the money you invest. Only risk capital should be used.

  4. #4
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    Default Silver should be at $25

    Quote Originally Posted by silverheartbone View Post
    deefault, deefault, deefault!

    Hip hip hurr-ray!

    SILVER

    deefault, deefault, deeefault!
    But because of the naked shorting, it is stuck under $21.

    Since they'll never repay the shorts they already have, why not continue?

    That's why we need the deeefault! DEEEFAULT!
    "I foresee little future in 'the price of silver', I see a huge future for 'the price in silver'." - heartbone
    "The truth is called hate by those who hate the truth." - K

  5. #5
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    Default

    Quote Originally Posted by silverheartbone View Post
    But because of the naked shorting, it is stuck under $21.
    Since they'll never repay the shorts they already have, why not continue?
    That's why we need the deeefault! DEEEFAULT!
    Please identify the 'naked shorting' that you are referring to. Perhaps some names and positions. The CFTC and the exchanges aren't seeing what you are talking about.

    Matthew C. Shelley
    Commodity Broker

    As always: Trading in futures and options is very high risk investing. You can lose all or more of the money you invest. Only risk capital should be used.

  6. #6
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    Default

    Quote Originally Posted by Matthew Shelley View Post
    Please identify the 'naked shorting' that you are referring to. Perhaps some names and positions. The CFTC and the exchanges aren't seeing what you are talking about.
    First, that is not my job. My job is stop the TBTF from stealing my wealth.
    Second our definitions probably differ and we'd be dealing in semantics.
    You
    "I foresee little future in 'the price of silver', I see a huge future for 'the price in silver'." - heartbone
    "The truth is called hate by those who hate the truth." - K

  7. #7
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    Default

    Quote Originally Posted by Matthew Shelley View Post
    Please identify the 'naked shorting' that you are referring to. Perhaps some names and positions. The CFTC and the exchanges aren't seeing what you are talking about.
    First, that is not my job. My job is stop the TBTF from stealing my wealth.

    Second our definitions probably differ and we'd be dealing in semantics.
    As you have rationalized the concept of a 'naked long',
    I doubt if you'd accept my deductive logic that the entities who short silver in the current market are 'naked shorts'.
    "I foresee little future in 'the price of silver', I see a huge future for 'the price in silver'." - heartbone
    "The truth is called hate by those who hate the truth." - K

  8. #8
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    Default

    Quote Originally Posted by silverheartbone View Post
    First, that is not my job. My job is stop the TBTF from stealing my wealth.
    Second our definitions probably differ and we'd be dealing in semantics.
    As you have rationalized the concept of a 'naked long',
    I doubt if you'd accept my deductive logic that the entities who short silver in the current market are 'naked shorts'.
    Definitions:
    Naked short: A short position without a corresponding long or hedge position.
    Naked long: A long position without a corresponding short or hedge position. (this would, by nature, include owners of the physical commodity)
    TBTF: Too big to fail. Not really a definition but a concept. (In my opinion, a grievously misguided concept. As a free market kind of guy, I would go along with Captain Kirk's comment about the Klingons, "Let them die.".)

    Saying 'it's not my job' is fine, but if you comment on something it would be good to be able to back it up. Otherwise it's idle talk.

    Matthew C. Shelley
    Commodity Broker

    As always: Trading in futures and options is very high risk investing. You can lose all or more of the money you invest. Only risk capital should be used.

  9. #9
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    Default A silver default will help to clean out the sleaze.

    Quote Originally Posted by Matthew Shelley View Post
    Definitions:
    Naked short: A short position without a corresponding long or hedge position.
    Naked long: A long position without a corresponding short or hedge position. (this would, by nature, include owners of the physical commodity)
    TBTF: Too big to fail. Not really a definition but a concept. (In my opinion, a grievously misguided concept. As a free market kind of guy, I would go along with Captain Kirk's comment about the Klingons, "Let them die.".)

    Saying 'it's not my job' is fine, but if you comment on something it would be good to be able to back it up. Otherwise it's idle talk.
    My opinion is that only in your 'derivative' world am I a 'naked long', and there is available silver behind all the shorted silver.

    In the real world if a responsible authority ever performs an accounting, then only one of us will be shown to be correct.

    Until then, our views are informed speculation, both your view and mine.

    If I am wrong then there is no chance of a default is there?

  10. #10
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    Exclamation Eureka!!!

    I figured out what the heck a 'naked long' really is.

    Any holder of SLV and other like 'derivative' 'instruments'.
    "I foresee little future in 'the price of silver', I see a huge future for 'the price in silver'." - heartbone
    "The truth is called hate by those who hate the truth." - K

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