FINANCE / POLITICS

CME Group to offer clearing for London OTC silver

According to the US exchange, it will offer clearing services for OTC London silver forward contracts as part of an attempt to grow its precious metals operations.

Posted: Wednesday , 18 Jul 2012

NEW YORK (Reuters) - 

CME Group Inc will offer clearing services for over-the-counter (OTC) London silver forward contracts, it said in a note to members on Tuesday, as the U.S. exchange aims to bolster its precious metals operations.

The exchange launched a similar service with clearing, settlement and delivery for OTC London gold forwards in February due to demand from customers to manage counterparty credit risk.

The exchange plans to launch the new product on Aug. 5 for trade date Aug. 6, pending regulatory approval.

The move in silver comes as trading volumes on the Chicago-based exchange's third-largest metals futures contract by volume have fallen sharply this year.

In the first six months of the year, silver futures volumes dropped some 41 percent to 7.09 million contracts, according to CME data.

That contrasts with a 2.5-percent rise in gold futures, its largest metals product by volume, and a 50-percent rise in copper futures, its second most-active metals contract.

The exchange is launching the new service at a tough time for global commodities exchanges.

Competition in the Chicago-based exchange's key agricultural, metals and energy markets has intensified, particularly with the emergence of an active investor base in Asia.

Furthermore confidence among traditional users such as wheat farmers and speculators has been hurt by the collapse last November of MF Global Holdings amid the scandal over the misuse of customers' segregated funds.

The news last week of a 20-year fraud at futures brokerage PFGBest by its chief executive Russell Wasendorf Sr. has struck an additional blow to the already-low confidence.

Silver has been in the spotlight in recent years, propelled higher alongside gold due to a weaker U.S. dollar and safe-haven buying due to heightened geopolitical tensions in the Middle East.

Even though the metal is considered more of an industrial material for its use in electronics rather than a traditional safe-haven play like bullion, silver hit record highs around $50 per ounce in April 2011.

Prices have since fallen back and were around $27 per ounce on Tuesday, but that is still more than 400 percent higher than 10 years ago when prices were around $5.

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