Convergence Monitoring 

Procedures CFTC Agricultural Advisory Committee

December 9, 2014
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, aa contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those fundtrade because they cannot expect to profit on every trade. All references to options refer to options on futures.Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because onlvalue is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Thfunds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devothey cannot expect to profit on every trade.Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMExchange, Inc. KCBOT, KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explannot be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchanconsulted in all cases concerning contract specifications.Copyright © 2014 CME Group. All rights reserved.

Disclaimer
CME Group monitors physically deliverefutures contracts that have open interest assure cash and futures prices converge levels consistent with historical norms as futures enter their delivery period or whefutures expire.

Overview
Cash price data and daily settlement pricthe expiring futures contract are collected entered into a spreadsheet. Basis is calcand plotted.

STEP 1
-100.00

-80.00-60.00-40.00-20.00

0.00

20.0040.0060.0080.00

100.00

6/2/14

6/9/14

6/16/14

6/23/14

6/30/14

7/7/14

7/14/14

7/21/14

7/28/14

8/4/14

8/11/14

8/18/14

8/25/14

9/1/14

9/8/14

Basis (cents/bu)

Basis Levels at Selected Locations

2014 September Wheat (CBOT)
-60-30

0

306090

120150

6/2/14

6/9/14

6/16/14

6/23/14

6/30/14

7/7/14

7/14/14

7/21/14

7/28/14

8/4/14

8/11/14

8/18/14

Price (cents/bu.) Kansas City Gulf

Basis Levels at Selected Locations

2014 Sep Wheat (KCBT)
-30-20-10

0

102030

6/2/14

6/9/14

6/16/14

6/23/14

6/30/14

7/7/14

7/14/14

7/21/14

7/28/14

8/4/14

8/11/14

8/18/14

Price (cents/bu.)

Kansas City Basis Levels 2014 Sep Wheat (KCBT)
-40.00-20.00

0.00

20.0040.0060.0080.00

100.00

6/2/2014

6/9/2014

6/16/2014

6/23/2014

6/30/2014

7/7/2014

7/14/2014

7/21/2014

7/28/2014

8/4/2014

8/11/2014

8/18/2014

8/25/2014

9/1/2014

Basis (cents per bushel)

Basis Levels at Selected Locations

2014 September Corn 
-50.00

0.00

50.00

100.00150.00200.00250.00300.00350.00

8/1/2014

8/8/2014

8/15/2014

8/22/2014

8/29/2014

9/5/2014

9/12/2014

9/19/2014

9/26/2014

10/3/2014

10/10/2014

10/17/2014

10/24/2014

Basis (cents per bushel)

Basis Levels at Selected Locations

2014 November Soybean 

@CMEGroup 
Basis is measured on First Delivery Day location, and compared to the historical aAny basis value on FDD more than two sdeviations away from the historical averaconsidered a possible convergence issu

STEP 2
• The mean & standard deviation for basis on F

measured location is calculated. Data consison FDD for each expiration since September 

• A confidence interval two standard deviations 

below the mean is calculated.

• The basis on FDD for each measured location 

expiring contract is then compared to the confinterval – inside the interval suggests satisfacconvergence while outside the interval suggeconvergence issue.

STEP 2 Detail
Should basis values for all monitored locations fall outside 2 standard deviatfrom historical average for TWO conseexpirations, Market Regulation is informthis observation.

STEP 3
Should basis values for all monitored locations fall outside 2 standard deviatfrom historical average for THREEconsecutive expirations, 3 to 5 market participants are contacted for their view market performance.

STEP 4
Should a majority of contacted market participants voice concerns about contperformance, the issue is escalated to broader audience through survey, focugroup, industry meeting, or some other means of reaching out to a wider crosssection of market participants.

STEP 5
Should a majority of contacted market participants NOT voice concerns about contract performance, the Exchange wclosely monitor the next two contract expirations. If the basis continues to binconsistent with it’s historical pattern, tissue is escalated as described in Step 

STEP 6
• CME Group Periodically Reviews Agricultural Contracts throu

Focus Groups

• Focus Groups are made-up of a Broad Cross-Section of 10 t

Participants

• Exchange Holds Individual Confidential Calls with Each Focu

Participant

• Exchange then Holds an all-inclusive Focus Group Meeting w

is a Summarization of the Individual Calls

• Any Potential Contract Changes Identified in the Calls and th

further Vetted through Additional Outreach

• The Exchange then Decides whether to Pursue any Contract • Use of a Focus Group does not Imply any Contract Chan

- Focus Groups are used to Review Contract Terms and Gather Feedb

Performance

Corn Contract Review
• Cross-Section of 20 Firms

- Commercials, Brokers, Proprietary Trading Firms, Hedge 

Funds

• Individual Calls held August - November• Focus Group Meeting held November 19• Focus Group Overall Very Satisfied with Corn 

Performance

• Group Recommended Additional Review of S

Contract Terms to Maintain Consistency with 

• Feedback is Currently being Vetted Internally

Corn Contract Focus Group
:; cMEGroup