Kim Taylor says:

Thanks to all for the feedback on this post. We’ve received a large number of related and similar comments. So rather than respond to each individually, I’d like to make the following points, which will hopefully address much of the feedback.

CME Clearing follows a process in setting margin levels that is geared toward assuring adequate margin coverage is on deposit with financial intermediaries so that market risk may be properly managed.

I want to assure you that our intent is to neutrally consider the facts, and to provide security for the entire market – no matter which way the market is moving. Margin increases impact both long and short position holders. The recent margin increases were necessary due to recent price volatility and large changes in implied volatilities, and our intent was to ensure that appropriate amounts of margin were being held against silver positions.

As far as the process for implementing changes, our margin change notification process is very transparent. Margin changes are distributed at least one day in advance of their implementation. This notification process provides advance notice to allow customers to assess the impact on their position and make arrangements for funding or adjust their position in light of the pending changes. As I am sure you are aware, conditions can change very rapidly in many of our markets.

There are many reasons why people might adjust their positions given increased volatility in the markets – preserving profits, mitigating losses, and adjusting the effectiveness of their hedges are all activities that have a much larger economic impact than the cost of funding adjustments in margins.

Finally, while it was a holiday in the U.K. on April 29 and May 2, our markets were open on both days. Therefore, we felt it appropriate to retain the flexibility to manage our risks, even when other markets are closed.

Again, we appreciate all of the feedback on this post.