Release Number 5504-08

Release: 5504-08

For Release: June 3, 2008


Washington, DC -- Today the Commodity Futures Trading Commission (CFTC or Commission) announced several policy initiatives aimed at addressing concerns in the agricultural futures markets raised at its April 22nd roundtable in Washington, DC. This roundtable was convened to discuss events affecting the agricultural futures markets – including the lack of convergence between the futures and cash prices, the impact of higher margin requirements, and the role of speculators and commodity index traders.

The agricultural roundtable generated high levels of public interest, with over 2,800 individuals watching the forum over the Internet. This was the first time that the CFTC provided a webcast of a public hearing, resulting in broad public involvement from 38 states and 43 countries ranging from Brazil to the United Kingdom.

CFTC Acting Chairman Walt Lukken and Commissioners Michael Dunn, Jill Sommers and Bart Chilton said:

“During the CFTC’s April 22nd agricultural markets roundtable, the Commission heard from a variety of market participants with various concerns about current conditions in the agricultural futures markets. The Commission is committed to ensuring that our agricultural futures markets function properly in their risk-management and price discovery roles. The Commission recognizes that—although no single solution exists—there are several steps it can take to improve oversight of the futures markets and bring greater transparency and scrutiny to the types of traders in the marketplace, including large index traders.”

Today the Commission announced the following initiatives:

I. Index Trading and Speculators

    Review of Trader Reporting and Classification: As announced last week, the Commission will develop a proposal to routinely require more detailed information from index traders and swaps dealers in the futures markets, and review whether classification of these types of traders can be improved for regulatory and reporting purposes. (See CFTC Press Release, May 29, 2008, 5503-08.)

    Withdrawal of Speculative Position Limits Proposals: The Commission has voted to withdraw the proposed rulemakings that would have increased the Federal speculative position limits on certain agricultural futures contracts (72 FR 65483) and created a risk management hedge exemption from the Federal speculative position limits for agricultural futures and option contracts (72 FR 66097).

CFTC Acting Chairman Walt Lukken and Commissioners Michael Dunn, Jill Sommers and Bart Chilton said:

“As part of this data gathering and policy review, the Commission will be examining the policy of CFTC staff granting exemptive relief from the CFTC’s Federal speculative position limits relating to agricultural commodity index trading. During this review period, the Commission will be cautious and guarded before granting additional exemptions in this area.”

II. Greater Risk Management Choices for Farmers and Agri-Businesses:

    Agricultural Trade Options: The Commission has tasked CFTC staff to review and propose revisions to improve the effectiveness of the current agricultural trade options (ATOs) program (63 FR 18821; 64 FR 68011). This risk management program may provide producers with an alternative for hedging price risk with the added benefit of a fixed premium.

    Clearing for Agricultural Swaps: The Commission has tasked CFTC staff to develop a proposal for allowing the clearing of agricultural swaps. This initiative will provide farmers and grain merchandisers with another choice for managing price and basis risk with the benefit of centralized clearing and the regulatory transparency that accompanies clearing.

III. Greater Transparency of Trader Information

    • The Commission has directed CFTC staff to develop a new CFTC monthly publication on trader data for agricultural and other markets, beginning in July 2008, to provide greater market transparency.

IV. Cotton Market Investigation

    The Commission’s Division of Enforcement has been conducting an ongoing investigation of the February/March 2008 price run-up in the cotton futures markets. Although the CFTC ordinarily conducts enforcement investigations on a confidential basis, the Commission is taking the extraordinary step of disclosing this investigation because of today’s unprecedented market conditions and concerns expressed by market participants at the Commission’s agriculture roundtable. The specifics of the ongoing investigation remain confidential. All Commission enforcement inquiries are focused on ensuring that the markets are properly policed for manipulation and abusive practices.

V. Margin and Agricultural Lending

    CFTC staff is coordinating with agricultural banking authorities, including the Federal Reserve Banks of Chicago and Kansas City as well as the Farm Credit Administration, regarding financing and credit issues arising from higher margins in the futures markets. As prices of all commodities rise, financing of margin levels becomes more difficult for commodity merchandisers and producers. The CFTC is working with agricultural lenders to facilitate an understanding of financing issues faced by market participants.

VI. Agricultural Advisory Committee

    • The Commission has asked the Agricultural Advisory Committee, under the leadership of Commissioner Michael Dunn, to work on several issues worthy of further industry input and study in the coming months, including:

        o Developing solutions for improving convergence in the futures and cash markets;

        o Discussing practices of exchanges on determining margin, daily price limits and methodologies of setting settlement prices;

        o Facilitating discussion on the role and size of over-the-counter agricultural swaps; and

        o Determining whether there are additional studies agricultural market users believe the Commission should undertake relevant to current agricultural commodity prices.

Media Contacts
Ianthe Zabel

R. David Gary

Last Updated: June 3, 2008