After raising margin requirements for silver futures contracts eight times last year, the CME Group has decided to lower margins yet again, after having last lowered them on February 13th.
Last year’s margin requirement hikes increased the cost of holding silver futures positions by 80 percent and was one of the key factors contributing to silver’s sharp decline last May.
On April 16th, margin requirements for COMEX 5,000 ounce silver futures contracts were reduced from $21,600 to $18,900, while maintenance margin was lowered from $16,000 to $14,000. Members of the exchange and traders denominated as hedgers margins were reduced from $16,000 to $14,000.
The CME Group Position on Margins
The CME Group last lowered margins on silver futures on February 13th, with initial margin for speculators reduced from $24,975 to $21,600 and maintenance margins from $18,500 to $16,000. Hedgers and members margin was reduced from $18,500 to $16,000.
Despite the official position taken by the CME Group, that they have no intention of influencing the market with their margin requirements, the fact is that by making positions harder to maintain, an influence on the market is inevitable.
According to Kim Taylor, President of CME Clearing, in a document published by the CME Group entitled “Understanding Margin Changes”,she wrote that margin requirements “aren’t a means to move a market one way or another, or to encourage or discourage participation from one kind of market participant or another.”
Taylor added that, “margins are not set to dampen or heighten volatility, but rather to provide the clearing house and clearing member firms with additional layers of financial resources to lessen the impact of price swings.”
How Raising Margins Affected the Silver Market Last Year
In a two-week stretch when silver hit a high of $49.51 per ounce on April 28th, 2011, the CME Group raised margin requirements five times, causing an 84 percent rise in trading costs. The move was an important factor in the subsequent slide in the price of silver.
On April 25th, margin requirements for a 5,000 ounce silver futures contract were $8,700 per contract. On May 5th, the CME Group raised margins to $14,000 per contract from a previous increase to $12,000. On May 9th, they raised initial margin to $21,600 and maintenance requirements to $16,000.
Since the CME Group has allegedly been a part of the ongoing manipulation in the metals market, it stands to reason that the margin hikes last year were part of a concerted effort to bring metals prices down. If the price of silver begins to rise sharply, it is most likely that margins will probably also increase.
"In addition to running a busy medical practice, Dr. Jeffrey Lewis is the editor and publisher of Silver-Coin-Investor.com, where he provides practical information for precious metals investors".