CME to expand clearing of ag swaps

Tue Jan 24, 2012 12:21am IST

Stocks

   

CHICAGO Jan 23 (Reuters) - CME Group (CME.O), the world's largest derivatives exchange, said on Monday it will expand its offering of “swap” contracts for grain commodities by listing eight new grain and oilseeds swaps for central clearing by the CME on Feb. 13.

Swaps are over-the-counter private agreements between traders to exchange financial obligations. They are widely used in the currency and interest rate markets to supplement risk management positions taken by banks and other traders in market-based futures and options contracts that are listed and cleared on exchanges like the CME.

“Ag swaps” are a relatively recent development, with CME listing its first clearing arrangements for the private deals in April 2009 to provide its customers with greater flexibility to manage risk. But CME’s value offering through its central market clearing of trades is catching on, officials say. The clearing arrangement means that the biggest risk in the private deals – that the counter-party won’t make good on the deal – is dealt with by the CME, which marks the deals to market daily and enforces compliance.

Swap contracts on corn have been the most popular of the initial group which included wheat and soybean swaps - all “calendar” swaps – deals marked to the futures price and settled every month based on a weighted average price of the CME futures contract in the month.

CME said it will expand its clearing of the private deals on Feb. 13 for the other most-active grain commodities it clears -- soybean meal and soybean oil calendar swaps.

"There continues to be a strong OTC and options market out there but to serve that market it's our view that we need to have a reasonably complete product line of what people are trading today. So this another step forward in developing that product line," Tim Andriesen, CME managing director for agricultural commodities told Reuters in an interview.

CME will also list clearing for soybean board crush calendar swaps – which will allow the active “spread” trade of soybean processors to join the ag swaps complex. Processors routinely buy soybean futures and sell meal and oil futures simultaneously when they want to lock in a “crush” profit margin on the futures board.

In addition to the three new calendar swaps will be added five “bullet” swaps for corn, wheat, soybeans, soymeal and soyoil, which are deals that reference the futures price but are marked to the futures price every day all the way to the swap’s expiration.

(Reporting By Christine Stebbins; Editing by Marguerita Choy)

((christine.stebbins@thomsonreuters.com)(312-408-8720)(Reuters Messaging: christine.stebbins.reuters.com@reuters.net)) Keywords: CME/GRAINS

(C) Reuters 2011 All rights reserved. Republication or redistribution of Reuters content, including by caching, framing, or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

  • Most Popular
  • Most Shared