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38 • Terminal Markets • C&CI March 2012


Liffe to introduce delivery limits for commodities


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n an ‘info flash’ it published in February, Liffe invited market participants to com- ment on the proposed regime for moni- toring and regulation of the cocoa, Robusta coffee and other contracts. Market participants were requested to submit in writing any comments on the proposed regime by 9 March 2012.


Liffe said the proposals had been devel- oped after what it called "a lengthy period of research and discussion on a one-to- one basis with many market participants." Following review and analysis of responses, the exchange will issue a sec- ond info-flash to members, outlining the feedback it has received, setting out any consequential revisions to the policy and consulting market participants on the spe- cific Rules that will support the enhanced regime. Following this two stage consulta- tion process, the exchange will issue a notice confirming the details of the enhanced regime, and the associated requirements/obligations falling on mem- bers, including the augmented rules, the procedures and related guidance.


November deadline


"At this stage the implementation timetable cannot be confirmed," said Liffe. "However, as things stand, members and users should expect the enhanced regime to first take effect for positions in November 2012 for Robusta coffee and December 2012 for cocoa."


Liffe said the proposals "are part of the continuing development of the exchange’s existing monitoring and position manage- ment arrangements, which are designed to maintain market confidence and to ensure that the exchange’s regulatory framework is consistent with regulatory developments at national and European levels." In recent years Liffe has been heavily criticised for a lack of transparency. Complaints reached a peak after Armajaro Trading took delivery of around 240,000 tonnes of cocoa, lead- ing to a price spike.


"In the course of discussions with market participants it has been confirmed that


NYSE Liffe says it plans to introduce delivery limits for its commodity futures. In future, buyers won’t be able to take delivery of more than 7,500 contracts of cocoa or Robusta coffee


2010 saw a single trader take delivery of an enormous quantity of cocoa, highlighting concerns about transparency and manipulation of the market


many would welcome a more formalised and prescribed position management regime which would help them to under- stand more clearly the exchange’s approach to regulation and its expectations of members and other users," Liffe said. "In a general sense, this would help to enhance market confidence and potential use of the contracts for risk management purposes. In particular, many comments have been made to the effect that the focus of any prescribed limits should only be on the contract delivery process itself since that is the point at which pressure on price formation would be manifest."


In parallel to this, market participants will be aware that: ■ The G20 and the International Organisation of Securities Commissions (IOSCO) have called for market regulators to have, and use, formal position manage- ment powers, including the power to set ex-ante position limits, particularly in the delivery month; and ■ the European Commission published draft legislation in respect of MiFID II


in October 2011, which calls for a for- malised position management regime for European commodities markets. Specifically, the draft legislation calls for the publication of weekly Commitments of Traders style reports to enhance trans- parency and the application of position lim- its, or alternative arrangements with the equivalent effect, with the objectives of supporting liquidity, preventing market abuse and supporting orderly pricing and settlement conditions.


During the second half of 2011 the exchange reviewed regimes in place at other exchanges – both in London and overseas – and has had constructive and informative discussions with regulatory col- leagues at these exchanges to under- stand more how they address issues specific to their markets. "This," said Liffe, "combined with considerable internal work, including a review of deliveries made in respect of the exchange’s commodity con- tracts over the last ten years, has enabled the Exchange to design an enhanced regime which it believes will continue to serve market participants well."


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