The CME Group, the biggest operator of U.S. futures exchanges, will cut margins for COMEX silver futures for the second time since February in an attempt to boost liquidity after a narrow price range tempered trading interest.
CME said in a statement it will cut the initial margin for COMEX 500 silver futures <0#SI:> by 12.5 percent to $18,900 per contract from $21,600, and the maintenance margin will be lowered to $14,000 from $16,000 per contract, effective after close of business on April 16.
"The margins are still relatively high compared to a year ago," said Nick Trevethan, senior commodity strategist at ANZ in Singapore.
"If we see volatility continue to decrease, there may be more scope for margin cuts." Margin cuts are mildly supportive of prices, but their effect is not as immediate and strong as margin increases, he added.
Margins are deposits paid by investors in futures markets to cover the risk of default. Exchanges typically raise margins to mitigate risks as price volatility in the market increases. CME raised margins five times in late April and early May last year by a total of 84 percent, sending silver down more than 30 percent over two weeks from its record high near $50 an ounce.
COMEX silver traded down 0.9 percent to $32.23 an ounce by 0236 GMT.
CME also plans to decrease the margins on NYMEX palladium futures <0#PA:> by 9.5 percent. The new initial margin will be $5,225 per contract versus $5,775, and the maintenance margin cut to $4,750 from $5,250.
COMEX copper futures <0#HG:> initial margins will be cut by 20 percent to $5,400 per contract, and the new maintenance margin will be $4,000.
Nobody trusts the COMEX, with good reason. It is not an honest marketplace. Their failure to backstop the contracts that were stolen from MF Global account holders is shameful. They're nothing but a proxy for the big boys and have demonstarted over and over again they will change the rules (and margin requirements) when it meets their objectives. We so desperately need another exchange for metals. Competition is the only thing that will create an honest marketplace.