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CME raises daily trade limits

Agriculture.com Staff 03/10/2008 @ 11:36am

The CME Group announced Monday that pending CFTC approval, daily price limits will increase March 28, 2008, for corn, mini-sized corn, soybeans, mini-sized soybeans and soybean oil futures and options on futures contracts.

Corn price limits will be increased to $0.30 from $0.20 per bushel, soybeans to $0.70 from $0.50 per bushel and soybean oil to $0.025 from $0.020 per pound.

The CME sees it necessary to raise price limit to maintain an orderly marketplace, according to the CME press release.

Since the current daily price limits were established in 2000, price levels and volatility for these commodities have increased significantly.

The CME sees the increased price limitsl allowing market participants to continue to utilize the contracts for price discovery and risk mitigation without being unduly constrained by limit price moves.

Matt Pierce, Futures International LLC, says the higher daily limits are overdue.

"When the markets trade limit up, the trading then goes to the options pit and we trade synthetically. Because very few people understand synthetics, volume suffers. So, the longer you can keep the trading on the screens the more trading you'll have. The CME has this figured out and so the limits go higher," Pierce says.

Joe Bedore, FC Stone's floor manager here agrees the wider limits are needed.

"A good example lately has been the soybean oil market," Bedore says. For three days, the market has been limit down and nobody can liquidate their position. If the limit for trading soybean oil was higher then traders could have exited their position on Friday when Thursday's market hit limit down. But, they had to wait until today and guess what, we are limit down again."

In addition, daily price limits for wheat, mini-sized wheat, corn, mini-sized corn, soybeans, mini-sized soybeans, soybean meal, soybean oil, oats and rough rice futures will increase by approximately 50 percent the following trading session when the price of two or more futures contract months within the first five to eight listed non-spot contract months (depending on the commodity's crop year), or the final contract month of a crop year, closes at limit bid or limit offer. Price limits can expand two consecutive times, according to a CME press release.

Daily price limits for these commodities will step back to their prior levels when no futures contract month for that commodity closes at limit bid or limit offer that day.

The Kansas City Board of Trade is adopting the same price limits policy for its wheat contracts.

Price limits will continue to be removed on the current contract month beginning on the second business day preceding the first day of the delivery month.

The premiums on options are subject to the same daily price limits as the underlying futures.

The CME Group announced Monday that pending CFTC approval, daily price limits will increase March 28, 2008, for corn, mini-sized corn, soybeans, mini-sized soybeans and soybean oil futures and options on futures contracts.

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