* CME to clear 5 bullet swaps: corn, wheat, soy, meal, oil
* Exchange adds soymeal, soyoil, crush calendar swaps
(Adds details, by-line)
By Christine Stebbins
CHICAGO, Jan 23 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 private, over-the-counter 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 listed and cleared on
exchanges like the CME.
“Ag swaps” are a much smaller market with CME listing its
first clearing arrangements for the private deals in April 2009
to provide its customers with greater flexibility to manage
risk. It started off slow 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
and enforces compliance.
Swap contracts on corn have been the most popular of the
initial group which included wheat and soybean swaps. These were
“calendar” swaps – deals marked to the futures price and
settled at an average weighted price of the CME futures
OTC cleared ag swaps volume: link.reuters.com/kys26s
CME said on Monday it will expand its clearing of calendar
swaps on Feb. 13 for the other most-active grain commodities it
clears -- soybean meal and soybean oil.
"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 tailor-made swaps to work in concert
with the traditional and very active “spread” trades by soybean
processors. Processors routinely buy soybean futures and sell
meal and oil futures simultaneously, locking in a specific
“crush” profit margin on the futures board.
CME says calendar swaps can be beneficial for companies that
continually purchase grain and have average price exposure, such
as ethanol producers who buy corn every day.
But in addition to the three new calendar swaps will be
added five new “bullet” swaps, which are deals that reference
the futures price and are marked to the futures price every day
all the way to the swap’s expiration, CME said on Monday.
CME said bullet swaps will be beneficial for customers who
want the flexibility of an over-the-counter product that looks
like the futures contract, such as a grain elevator that buys
grain more sporadically. Bullet swap clearing will be offered
for all five commodities but not for the soybean crush deals.
CME had hoped to launch these products two years ago along
with live cattle and lean hog swaps.
"Unfortunately they got caught up in all the rule making
around Dodd Frank and have been delayed until this point in
time," Andriesen said.
The livestock and dairy contract swaps have yet to be
launched but Andriesen expects at least some of those to be
listed in 2012, adding that customers have expressed strong
interest in centrally cleared agricultural swaps as a way to
complement CME's underlying futures.
CME said the new swaps will be cleared through its Clearport
screen system, which also handles the current calendar swaps in
OTC corn, wheat and soybeans and provides access to more than
10,000 potential counter-parties for swaps.
Corn swaps have led the way for the new clearing of the OTC
deal due to interest among ethanol plants, traders say, which
now consume about 40 percent of the massive U.S. corn crop. The
biggest trading days tends to follow USDA report days when fresh
government data has caused a price-limit move -- sending traders
to swaps and options markets.
CME's latest offerings are the first ag swaps to debut after
the Commodity Futures Trading Commission's new swaps rule,
effective Jan. 1.
(Reporting by Christine Stebbins; Graphics by Gavin Maguire;
Editing by Marguerita Choy; Editing by David Gregorio)
(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.