The CBOT Petition to Repeal CF

The CBOT Petition to Repeal CF

Regulation 150.2 and Proposal 

Regulation 150.2 and Proposal 

Increase Single Increase Single

- and All and All

-Mon

Speculative Position Limits Speculative Position Limits

Bernard Dan, President and CEO Bernard Dan, President and CEO 

- CB

CFTC Agricultural Advisory CFTC Agricultural Advisory 

Committee Committee

July 21, 2004 July 21, 2004
The CBOT Proposal The CBOT Proposal

 Repeal Federal Speculative Repeal Federal Speculative Position Limits Sp

Position Limits Sp

in CFTC Regulation 150.2 in CFTC Regulation 150.2 

 Approve CBOT Submission to Increase Specu

Approve CBOT Submission to Increase Specu

Position Limits Specified in Position Limits Specified in CBOT Regulatio

 CBOT Regulatio

 Give Exchanges Authority to Establish and M

Give Exchanges Authority to Establish and M

Speculative Position Limits Speculative Position Limits Consistent With C

Consistent With C

Guidelines and With CFTC Oversight Guidelines and With CFTC Oversight

 Maintain CFTC Guidelines and Oversight Maintain CFTC Guidelines and Oversight
Why Repeal CFTC Regulat

Why Repeal CFTC Regulat

150.02? 150.02? 

 Allows Quicker Response to Market Allows Quicker Response to Market 

Changes (The Last Change In Spec. L

Changes (The Last Change In Spec. L

in 1999 Took 7 Years to Fully Implem

in 1999 Took 7 Years to Fully Implem

 Enables Regulated Exchanges to Bette

Enables Regulated Exchanges to Bette

Compete With OTC Markets to Attrac

Compete With OTC Markets to Attrac

Speculative Capital Speculative Capital

 Consistent With CFMA Core Principle

Consistent With CFMA Core Principl
Proposed Changes in CBO

Proposed Changes in CBO

Regulation 425.01 Regulation 425.01 

 Spot

-Month Limits Month Limits 

– NO CHANGE NO CHANGE

 Single

-Month Limits Month Limits 

– (Based on CFT

(Based on CFT

Guidelines Using 2003 Data) Guidelines Using 2003 Data)

– Corn 

– From 5,500 to 10,000 Contracts From 5,500 to 10,000 Contracts

– Wheat 

– From 3,000 to 4,500 Contracts From 3,000 to 4,500 Contracts

– Soybeans Soybeans 

– From 3,500 to 6,500 Contrac

From 3,500 to 6,500 Contrac

– Soybean Oil Soybean Oil 

– From 3,000 to 4,500 Cont

From 3,000 to 4,500 Cont

– Soybean Meal Soybean Meal 

– From 3,000 to 4,500 Co

From 3,000 to 4,500 Co
Proposed Changes in CBO

Proposed Changes in CBO

Regulation 425.01 (cont.) Regulation 425.01 (cont.)

 All

-Month Limits Month Limits 

– (Based on CFTC (Based on CFTC 

Guidelines Using 2003 Data) Guidelines Using 2003 Data)

– Corn 

– From 9,000 to 17,000 Contracts From 9,000 to 17,000 Contracts

– Wheat 

– From 4,000 to 5,500 Contracts From 4,000 to 5,500 Contracts

– Soybeans Soybeans 

– From 5,500 to 10,000 Contra

From 5,500 to 10,000 Contra

– Soybean Oil Soybean Oil 

– From 4,000 to 6,500 Cont

From 4,000 to 6,500 Cont

– Soybean Meal Soybean Meal 

– From 4,000 to 6,000 Co

From 4,000 to 6,000 Co
Speculative Limit Guidelin

Speculative Limit Guidelin

from CFTC Regulation 150

from CFTC Regulation 150

 Spot

-Month: No Greater Than 25 Percent of the Sp

Month: No Greater Than 25 Percent of the Sp

Month Deliverable Supply Month Deliverable Supply

 Single

- and All and All

-Months: No Greater Than 10 Perce

Months: No Greater Than 10 Perce

Average Combined Futures and Delta Average Combined Futures and Delta-Adjusted Op

Adjusted Op

Month

-End Open Interest for the Most Recent Cale

End Open Interest for the Most Recent Cale

Year Up To 25,000 Contracts With a Marginal Incr

Year Up To 25,000 Contracts With a Marginal Incr

2.5 Percent Thereafter. The Guidelines Also Sugge

2.5 Percent Thereafter. The Guidelines Also Sugge

the Breadth and Liquidity of the Underlying Cash M

the Breadth and Liquidity of the Underlying Cash M

and Arbitrage Opportunities Between the Futures a

and Arbitrage Opportunities Between the Futures a

Markets May Be Relevant Considerations. Markets May Be Relevant Considerations. 
Weekly Average Corn Futures 

Weekly Average Corn Futures 

Options Open Interest 1999 Options Open Interest 1999

-20

Note: Proposed Speculative Limits Are Based on 2003 Open Interest Data
Weekly Average Wheat Futures 

Weekly Average Wheat Futures 

Options Open Interest 1999 Options Open Interest 1999

-20

Note: Proposed Speculative Limits Are Based on 2003 Open Interest Data
Weekly Average Soybean Futu

Weekly Average Soybean Futu

and Options Open Interest and Options Open Interest 

1999

-2004

Note: Proposed Speculative Limits Are Based on 2003 Open Interest Data
Weekly Average Soybean O

Weekly Average Soybean O

Futures and Options Open Inte

Futures and Options Open Inte

1999

-2004

Note: Proposed Speculative Limits Are Based on 2003 Open Interest Data
Weekly Average Soybean Me

Weekly Average Soybean Me

Futures and Options Open Inte

Futures and Options Open Inte

1999

-2004

Note: Proposed Speculative Limits Are Based on 2003 Open Interest Data
More Liquidity Helps Hedger

More Liquidity Helps Hedger

 Markets Have Attracted More Specula

Markets Have Attracted More Specula

Capital from Large Traders Capital from Large Traders

 Likewise, Large Hedgers Have Increa

Likewise, Large Hedgers Have Increa

Their Open Interest Holdings Their Open Interest Holdings

 Speculative Activity (Liquidity) Allow

Speculative Activity (Liquidity) Allow

Hedgers to Trade More Effectively Hedgers to Trade More Effectively

 Result 

– More Liquidity in Open and More Liquidity in Open and 

Transparent Markets Transparent Markets
CFTC Large Trader Data CFTC Large Trader Data 

– Perce

Perce

Open Interest Held by Large Open Interest Held by Large 

Speculators and Hedgers Speculators and Hedgers
Summary Summary

 Repeal of CFTC Speculative Limits Is Repeal of CFTC Speculative Limits Is 

Good For Regulated Markets Good For Regulated Markets

 CFTC Guidelines and CFTC Oversigh

CFTC Guidelines and CFTC Oversigh

Remain

 Increasing Open Interest Supports Hig

Increasing Open Interest Supports Hig

Single- and All and All-Month Limits Month Limits

 Price Discovery Enhanced with Divers

Price Discovery Enhanced with Diver

Market Participants Market Participants
Questions?