January 23, 2008

CME studies higher daily price limits for CBOT grains, soy

With volatility high in Chicago Board of Trade grain and soybean futures, CME Group Inc. (CME) is quizzing traders about whether they support increases in daily price limits.

One possibility being considered is raising corn's daily limit to 35 cents per bushel from 20 cents, soy's limit to 85 cents from 50 cents, and wheat's limit to 70 cents from 30 cents, according to a survey distributed to traders by the CME. Daily price limits represent the largest price movement allowed from the previous trading day's settlement price.

The exchange began asking traders about the potential adjustments last week and is accepting feedback until Friday. The survey was prompted by queries from CBOT customers, CME spokeswoman Mary Haffenberg said. The exchange does not have a timeline for responding to the results, she said.

We are trying to do a comprehensive survey to gauge an idea of what the marketplace and the customers want, Haffenberg said.

Market participants are considering the merits of higher daily limits after a sharp increase in the number of contracts that settled at their daily price limit last year. In 2007, 39 wheat contracts, 27 corn contracts and nine soy contracts settled at their daily price limit, according to the CME.

Futures contracts that are locked limit-up can trade synthetically higher in options markets, although it can be "cumbersome and non-exact" for trading firms to follow the implied prices, the CME said in the survey. The exchange also loses business when contracts are stuck at their daily limits because some traders move from the futures market to the over-the-counter market to manage their risk, the CME added.