CME Group extends “over-the-counter” clearing services to London silver products in move to regain lost market confidence
Wednesday July 18, 2012
As reported by Reuters on Tuesday, pending regulatory approval, Chicago-based CME Group will begin on August 6 to offer clearing, settlement, and delivery for over-the-counter (OTC) London silver forward (futures) contracts. This new product line for the U.S. exchange will be an extension of the CME Group’s OTC London gold clearing services which were launched in February.
The new clearing services are a last-ditch effort by the Chicago exchange to respond to increasing customer demand for some kind of counter-party risk management with respect to OTC products. Investor confidence in the safety and integrity of all western exchanges and in their products, including OTC precious metal future contracts, and subsequently, trading volume of these products on the Chicago exchange has been steadily eroding. On the heels of CFTC investigations of massive naked short fraud and price manipulation in U.S.-based silver futures markets, the scandalous misappropriation of segregated customer funds during the collapse of seemingly ”untouchable” Jon Corzine’s MF Global , and amid new revelations of fictitious LIBOR rates and of 20 years of fraud by PFGBest’s CEO Russell Wasendorf SR., investors are pulling out in record numbers.
According to data from CME Group, silver futures volume has dropped by 41% to 7.09 million contracts in the first half of this year, at the same time that precious metal futures contract volumes on the new Asian exchanges are seeing unprecedented growth. The dramatic fall in volume of Chicago futures contracts for the past six months is being mischaracterized by some western market observers as a lack of interest on the part of silver investors. In reality, many silver investors have taken their funds elsewhere to take advantage of more reliable, privately-sourced physical precious metals.
Whether offering London-based OTC gold and silver by CME Group will reflect in a reversal of confidence erosion is yet to be seen. As is written in The Silver BOMB | Beyond the Return of Metal as Money,
“…buyers essentially do not trust that…future contract paper would be honored…or that they can expect to be able to get gold [or silver] in the future at any price.”
As intractable debt, insolvency, market manipulation, fraud, and outright theft of customer funds is more and more seen as “business as usual” in western economies, the paper markets of the western exchanges will see further drops in trade volume at the same time that commodities, particularly precious metals, will find their true (higher) prices as determined in open trading outside of the futures markets and by the activities of the growing Asian investor base. Again, from the pages of The Silver BOMB,
“When finally all faith in the futures market has evaporated…Gold [and silver] will have effectively been removed from pricing against paper currency, and in the resultant split, the price of services and other tangibles will begin to be evaluated in gold [and silver]. In very short order, the paper will be rendered meaningless regardless of its quantity”
There is undoubtedly more to be revealed as evidence of the shift away from paper futures markets in the west as we continue on the one-way road toward the end of paper money.