NYSE Liffe, the derivatives arm of NYSE Euronext, will stick to a proposal to implement delivery limits to its London commodity contracts, according to a notice on the exchange’s website dated June 22.
Buyers will not be able to take delivery of more than 7,500 contracts on cocoa and robusta coffee, 5,000 contracts on white sugar and 2,000 contracts on feed wheat, according to a Feb. 15 proposal. The planned limits would have permitted most of the deliveries in the past 10 years and wouldn’t inhibit commercial activity, NYSE Liffe said in the notice, after consulting 12 members representing 60 percent of all outstanding contracts.
“The exchange believes that the proposal to limit the size of deliveries has general member and user support,” it said. “Delivery limits will normally be reviewed every six months.”
“A number of respondents” on a survey about the proposal suggested delivery limits should be increased on all four commodities, according to the notice. Two preferred the current rules and a third was against limits in wholesale markets. The proposed changes will take effect for positions in November 2012 for robusta coffee, December 2012 for white sugar and cocoa and January 2013 for feed wheat, the exchange said.
“I believe strongly some degree of regulation needs to be implemented to prevent unnecessary situations developing in the markets, but this solution is not without risk,” Jonathan Parkman, co-head of agriculture at broker Marex Spectron Group in London, said by phone today. “There is a danger that we create a whole new set of unintended risks due to the inflexibility of the new rules”
NYSE Liffe may allow buyers to take delivery of up to double the proposed limit in certain cases, which include a physical commitment to deliver to a client the commodity obtained via the exchange, according to the February proposal.
“The proposed levels of exemption upper limits remain appropriate at present,” according to the notice.
The exchange is also seeking feedback on a new plan to add an exemption to allow for short position holders to deliver an amount up to the relevant exemption limit, it said. Under this proposal, ownership of graded coffee and cocoa available for delivery must be proven and ownership of wheat under warrant must also be proven. In the case of white sugar, the physical commodity must be available for shipment, it said.
A change to the timetable for exemption applications is also being proposed. Feedback must be submitted by the close of business on July 13.