In an effort to provide customers additional benefits through its over-the-counter (“OTC”) facilities, CME Group Inc. (CME - Analyst Report) is making arrangements to offer “clearing services” for London silver forward contracts, according to a Reuters report. On receiving approval of the regulatory bodies, the program is scheduled to start from August 5, followed by trading on the next day.
Experts opine that this initiative by the company follows the sharp fall in trading volumes of silver traded in the exchange. According to CME reports, silver futures volumes plunged 41% from $12.02 billion during the first-half of 2012.
The fall in silver futures volume is in stark contrast to the rise in trading volumes of gold and copper futures by 2.5% and 50%, respectively. In addition, gold and copper are the most popularly traded metals on the exchange.
CME Group’s decision to launch the OTC clearing services comes at a time when the commodities market is facing turbulence, owing to the MF Global Holdings fiasco and mismanagement of “customers' segregated funds.”
However, the demand for silver has been on the upswing following the deterioration of the U.S. Dollar and other pressing issues prevalent in the Middle East.
CME holds a 98% share of U.S. futures, trading with a clearing house notional value of over $35 trillion. The company’s launch of metal contracts along with OTC interest rate swaps and cross-margining between CME Clearing Europe and its U.S. clearing house in the first half of 2012 has further accentuated its global presence. Most of CME Group’s long-term growth investments have shown favorable upsides.
CME Group currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. It competes closely with IntercontinentalExchange, Inc. (ICE - Analyst Report), which has a similar Zacks rank. We also maintain a long-term Neutral rating on CME Group’s shares.