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SPEECHES & TESTIMONY

  • Statement of Steve Sherrod, Acting Director of Surveillance, Division of Market Oversight

    March 25, 2010

    Metals Meeting

    Good morning Mr. Chairman, Commissioners. This morning I will present two sets of general statistical information regarding gold, silver and copper markets. The first set of information is a summary of trading volume in select major metals markets in 2009. The second set of information provides a view of large traders and concentration in these markets during a sample time period. That information includes aggregate statistics derived from the CFTC’s Large Trader Reporting System. By way of reminder, Section 8 of the Commodity Exchange Act generally does not permit the Commission to publish data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers. 7 U.S.C. 12.

      I. Trading Volume

    Gold, silver and copper are traded around the world on many exchanges.

    Map - Major world venues for gold, silver and copper trading

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    Gold: Price discovery in gold markets occurs around the world. Of the 2009 gold trading volume in cash, forward and futures contracts for six major gold markets, the London Bullion Market Association (LBMA) accounted for about half and the Commodity Exchange, Inc. (COMEX, part of the CME Group) accounted for about one-third. The data in the chart (below) does not include options, which generally have comprised a small part of the trading volume. The six markets are: the LBMA; COMEX; the Multi Commodity Exchange of India, Ltd. (MCX); the Tokyo Commodity Exchange (TOCOM); the Shanghai Futures Exchange (SHFE); and NYSE Liffe U.S. (NYSE Liffe). The trading volume of these six venues is presented in terms of millions of troy ounces and as a percentage of the aggregate volume for these six venues.

    LBMA forward contracts and COMEX futures contracts are close economic substitutes, trading in central markets with visible prices. LBMA trades cash spot and forward gold contracts, most of which are for delivery within 90 days. COMEX trades futures contracts. Most COMEX futures trading occurs in contracts that are within 90 days of delivery.

    Graph - Gold: Futures Volumes by Major Exchange (2009, millions of troy ounces)

    Silver: Turning to silver, the pie chart (below) illustrates the 2009 trading volume of five venues in terms of millions of troy ounces and as a percentage of the aggregate volume for these venues. (SHFE did not list a silver contract.) COMEX accounted for about half and LBMA accounts for about one-third of the volume.

    Graph - Silver: Futures Volumes by Major Exchange (2009, millions of troy ounces)

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    Copper: In copper futures markets in 2009, the pie chart (below) provides the futures trading volume of four venues in terms of millions of tonnes (that is, 1,000 kilograms) and as a percentage of the aggregate volume for these venues. The London Metal Exchange (or LME) accounts for over half, SHFE accounts for over one-third, and COMEX accounts for only a sliver of the 2009 volume.

    Graph - Copper: Futures Volumes by Major Exchange (2009, millions of tonnes)

      II. Aggregated Data for US Reporting Markets: COMEX and NYSE Liffe

    The Commission collects reports every day about persons who hold or control futures and options positions that, at the close of the market, exceed reporting levels set forth in Commission Regulation 15.03. 17 CFR 15.03. The current reporting level for gold is 200 contracts. The level for silver is 150 contracts. And the level for copper is 100 contracts. Commission staff uses the reportable position data in our surveillance program.

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    Commitments of Traders: To provide transparency to the public in the form of aggregate statistics, CFTC publishes the Commitments of Traders (COT) report for each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Those reports are available on www.cftc.gov.
    (See, in particular, http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm and http://www.cftc.gov/OCE/WEB/data.htm.)

    Staff used historical data from the public Disaggregated COT Reports to produce charts (below) showing the net position by the four trader classifications for the two most recent calendar years and through March 16, 2010 (as of date for the most recent report). The four trader classifications are: Producer/Merchant/Processor/User; Swap Dealers; Managed Money; and Other Reportables.

    Graph - Gold Net FOC By Trader Classification (January 1, 2008 to March 16, 2010)

    Graph - Silver Net FOC By Trader Classification (January 1, 2008 to March 16, 2010)

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    Graph - Copper Net FOC By Trader Classification (January 1, 2008 to March 16, 2010)

    Bank Participation Report: Also to provide transparency to the public, CFTC publishes the Bank Participation Report (BPR) on a monthly basis. The BPR includes data for every market where five or more banks hold reportable positions. For purposes of protecting the confidentiality of participants’ market positions (as required under section 8 of the Commodity Exchange Act) when the number of banks in either category (U.S. Banks or Non-U.S. Banks) is less than four, the number of banks in each of the two categories is omitted and only the total number of banks is shown for that market.

    Staff used historical data from the public BPR to produce charts (below) of the gross futures positions and, separately, the gross option positions (not delta adjusted) for the past two and one-quarter year period.

    Graph - Gold Futures By Bank Large Trader Positions (January 2008 to March 2010)

    Graph - Silver Futures By Bank Large Trader Positions (January 2008 to March 2010)

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    Graph - Copper Futures By Bank Large Trader Positions (January 2008 to March 2010)

    Graph - Gold Options By Bank Large Trader Positions (January 2008 to March 2010)

    Graph - Silver Options By Bank Large Trader Positions (January 2008 to March 2010)

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    CFTC staff generally does not provide an analysis of COT Reports or BPRs. However, as an example of how one might use COT Reports and the BPR together, I had staff overlay the silver COT chart with the silver BPR chart (below). (The bar chart for the BPR repeats the monthly data point each week until the next monthly BPR is published.) I note there is one month, August 2008, where a large increase occurred in the reported short position for U.S. banks in the BPR.

    Graph - Overlay of Silver COTR (Net FOC) and BPR (Futures Contracts) January 1, 2008 to March 16, 2010

    It has been widely inferred and reported by others that one trader dramatically increased its short position in August 2008. Since for every short there must be a long, one might expect there would be an increase in the short or long positions reported in the COT. However, there is not a large change of the same magnitude in the aggregate long or short positions in the COT classifications. There also was not a significant change in open interest during the period of July and August 2008.

    There are alternative explanations that would result in a reported increase in short open interest in the BPR, without corresponding changes in the aggregate positions in the COT or open interest. I offer two possibilities:

    One could explain a change in short open interest on the BPR by a change within the classification system; if the usage code changed from non-bank to bank for a trader with a short position, then an increase in the short open interest would appear on the BPR, without any change in the COT Report.

    Another explanation would be a merger or acquisition where a bank assumes the position of a non-bank entity, both of whom were under the same commercial classification. That may not result in a change in open interest and may not result in a change in aggregate position within a COT classification. But it may result in an increase in the reported position on the BPR.

    As I noted at the beginning of this presentation, Section 8 of the Commodity Exchange Act generally does not permit the Commission to publish data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers. So, I can do no more than offer these alternative explanations.

    Index Investment Data: The CFTC has provided additional information to the public regarding index investment data on a quarterly basis. CFTC obtained this data from special calls on swap dealers. The charts (below) show data by category for the quarter ends from December 2007 through December 2009 and for select contracts as of December 2009. The metals category represents a relatively small notional amount, in comparison to the energy category.

    Graph - Special Call Commodity Index Exposure by Category - Quarterly Notional Net Dollar Values

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    Graph - Notional Value of Index Investment in Selected U.S. Futures Markets (as at December 31, 2009)

    Traders over position accountability levels at COMEX and NYSE Liffe: Looking behind the public Disaggregated COT Report data, the chart (below) provides a summary of traders that held positions at or above the position accountability levels at either COMEX or NYSE Liffe (including its predecessor exchange) during a sample period of January 1, 2008, through March 16, 2010. For example, in gold for all months combined and for a trader’s net futures and delta-adjusted options combined position, 56 traders exceeded the position accountability levels on one or more days during the two and one-quarter year sample period. The maximum number of traders holding positions in gold at or above the position accountability level on any one day was 26. 17 traders on average exceeded accountability levels for an average of 34 Tuesdays of the 115 Tuesdays in the sample period. The average position while over accountability levels was 20,233 contracts.

    Table - Summary of Traders At Or Above Position Accountability Levels (January 1, 2008 to March 16, 2010 - Tuesdays Only)

    As is the case for the COT reports, this sample period is for Tuesdays only. There were 115 Tuesdays in the sample period. The aggregate statistics provide two different categories per market. First, we identify traders holding positions in excess of the single month position accountability level. And second, we identify traders holding positions in excess of the all month position accountability level. The columns show: the unique number of traders at or above the position accountability level in each of these markets during the sample period; the maximum number of traders on any particular Tuesday over the position accountability level; the average number of traders over the position accountability levels for all 115 days in the sample period; the average number of days each such trader was over during the sample period; and the average position of traders when over the position accountability level.

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    Additional Concentration Data: The four charts (below) provide aggregate data for the top 4 owners in select commodities. For comparison purposes, concentration measures are provided for metals contracts, Chicago Board of Trade corn and wheat contracts, the Chicago Mercantile Exchange S&P 500 stock index contracts, and the energy commodities by the referenced energy contracts defined in the Commission’s Notice of Proposed Rulemaking of January 26, 2010. The charts cover the same sample period (January 1, 2008, through March 16, 2010) and show data in a Tuesday only format, like that of the COT Reports.

    Graph - Top 4 Owners of Net Long Positions as a Percentage of Open Interest (January 1, 2008 to March 16, 2010 - Tuesdays only)

    Graph - Top 4 Owners of Net Short Positions as a Percentage of Open Interest (January 1, 2008 to March 16, 2010 - Tuesdays only)

    Graph - Top 4 Owners of Gross Long Positions as a Percentage of Open Interest (January 1, 2008 to March 16, 2010 - Tuesdays only)

    Graph - Top 4 Owners of Gross Short Positions as a Percentage of Open Interest (January 1, 2008 to March 16, 2010 - Tuesdays only)

    I note this data is aggregated at the owner level, rather than the trader level. The charts provide not only the net long and net short positions of the top 4 owners, but also show gross long and gross short positions of the top 4 owners separately.

    It is evident that the concentration levels for the top 4 traders in gold, silver and copper generally are higher than those in other contracts on the short side of the market.

    Last Updated: February 17, 2011



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