Although the Chicago Board of Trade (CBOT), operated by CME Group, is synonymous with grain futures trading, IntercontinentalExchange (ICE) recently announced the launch of five competing grain contracts on ICE Futures U.S.
ICE will begin trading cash-settled corn, wheat, soybeans, soybean meal and soybean oil futures on May 14 and options on May 15. They will settled based on the CBOT price.
Jeffrey Sprecher, chairman and CEO of ICE, attributed the new contracts to customer demand. “The whole thing sounds kind of daft, but we have just been inundated by customers that have asked us to do this,” he said.
Perhaps it is coming from swap dealers and index providers who may lose hedge exemptions when the new position limit rules go into effect. The rules state, “These spot month limits will be applied separately for physical-delivered and cash-settled Referenced Contracts in the same commodity.”
Based on the rules, traders bumping into position limits in the physically delivered CBOT contracts could extend their position capacity by trading the cash-settled contract.
However, the limits, which are being challenged in court, will not go into effect until 60 days after the CFTC and Securities and Exchange Commission finalize the definition of swaps. CFTC Chairman Gary Gensler stated in May, “The staffs are making great progress, and I anticipate the Commissions will take up this final definition rule in the near term.”
Andy Nybo, head of Tabb Group’s derivatives practice commented that, “It has been very [difficult] to build liquidity in a product that already has a deep and entrenched market.”
Nybo added that customers may see some clearing efficiencies with ICE’s other agricultural products.