CME Gold and Silver Settlement Methods to Change

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Wisdom
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CME Gold and Silver Settlement Methods to Change

Post by Wisdom » Mon Mar 01, 2010 2:03 pm

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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