Silver: Much Higher Margins Ahead for CME?

Thomas Northcut | Photodisc | Getty Images

Current margins on CME Group's [CME 295.77 -8.28 (-2.72%) ] exchange are $14,513 for a "New Initial" position in one silver futures contract, or about 6 percent of the value of the contract. The new rates posted by MF Global reflect margins of 11 percent of the value of the contract.

Earlier Friday, market activity indicated investors were unwinding short gold versus long silver positions. Gold futures for June [GCCV1 1556.40 25.20 (+1.65%) ] settled up $25.20 to end at $1,556.40, a fresh record high. Silver, on the other hand, finished about where it started the session, near $48 an ounce [XAG= 47.80 -0.01 (-0.02%) ] .

The margin increase is being described by some as an atypical move for MF Global [MF 8.41 0.09 (+1.08%) ] . Sean McGillivray, vice president at Great Pacific Wealth Management, said that normally, MF Global moves in lockstep with the CME [CME 295.77 -8.28 (-2.72%) ] .

"I would anticipate that the CME will be raising margins again due to the volatility of the daily trading range as well as to reflect the contract's intrinsic value," he said. McGillivray suggested markets could see some selling in silver when Comex electronic trade starts Sunday night at 6pm ET.

The purpose of increasing margins would be to keep both long and short investors from adding to positions in what has become an increasingly volatile market.

CME has already raised margins on silver futures twice in the past week alone. CME spokesman Chris Grams said any further increase in margins depends on volatilty.

"We are monitoring all our products. These decisions are based on volatility, it will depend on the markets," Grams said.

MF Global has not yet responded to a request for comment. MF Global is both a member of the Nymex and a ring dealing member of the London Metal Exchange. The company operates as a market maker and broker in metals futures, options, and over-the-counter swap products.