Comex Changes Settlement of Gold and Silver Futures

Have not looked into the details of this yet, but I'm sure there is something behind it to help the short-sellers of gold and silver that are few numbers and huge in size both in terms of firm/institution size and even bigger in position size. By position size I mean at times bigger than the market cap of the firms. Here is the WSJ article. This was brought to our attention by the great work of GATA.org.

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From Dow Jones Newswires
via The Wall Street Journal
Monday, February 22, 2010

http://online.wsj.com/article/BT-CO-20100222-710684.html?KEYWORDS=CME+go...

NEW YORK -- CME Group Inc. will switch the procedure for settling Comex gold and silver futures to a method based on average price and volume rather than a specific price point, the exchange said Monday.

As of Friday, staff will settle the most-actively traded month of each contract at the volume-weighted average price -- which skews toward more heavily traded lots -- of outright trades on the CME Globex electronic trading platform. This is a change from the current method of settlement, where the lead contract month for gold and silver are settled to the midpoint of Globex trades during the settlement time range.

The settlement time periods are 1:29 p.m. ET-1:30 p.m. for gold and 1:24 p.m.-1:25 p.m. for silver.

If there are no outright trades during the settlement periods, the settlement price will be the best bid or offer in the expiring contract at the close of the market that is closest to the last traded price.

If there is no bid or offer in the expiring contract at that time, the settlement price will be implied from the bid/offer in the active spread at the close of the market, at the price that is closest to the last outright trade price in the expiring contract.

Contract months other than the active month will be settled by staff in conjunction with market participants based on spread relationships on CME Globex and the trading floor.

The greatest weight will be given to spreads traded in larger volumes later in the trading day, either on the trading floor or on CME Globex. In the absence of trading activity, spread bids/offers actively represented either on the floor or Globex will determine the settlements.

If there is insufficient activity to make the calculations, staff may rely on earlier data or other available market information to determine an appropriate settlement price.

If staff determine that anomalous activity yields results that are not representative of the fair value of the contract, staff may determine an alternative settlement price.

The changes will likely have little, if any impact on the market.

"It certainly doesn't seem like any big shake for speculators or users of the market," although it may have some bearing for commercial or other participants who take delivery of the metals, said Frank Lesh, broker and futures analyst with FuturePath Trading. Most participants do not take delivery from futures contracts. Rather they tend to roll positions they want to hold into farther forward contracts.

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