NYSE Liffe, the derivatives arm of NYSE Euronext, will fine members that breach new delivery limits on its robusta coffee, white sugar, cocoa and feed wheat futures contracts traded in London.
A fine of 40,000 pounds ($64,860) will apply on an average offense basis to members that break delivery limits or delivery-limit exemption rules or fail to comply with the terms of a delivery-limit exemption, the exchange said in a notice on its website. NYSE Liffe will limit the amount of the four commodities buyers can take delivery of as part of its new position-management regime that came into force yesterday.
“Any member who makes or takes delivery in excess of the relevant delivery limit without a delivery-limit exemption having been granted by the exchange will be the subject of disciplinary action,” the exchange said in the notice. “The benchmark sanction will only be used as the starting point for determining the appropriate sanction.”
Buyers won’t 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 the notice. The changes will take effect for positions in November for robusta coffee, December for white sugar and cocoa and January for feed wheat, the exchange said.
NYSE Liffe may allow buyers to take delivery of up to double the limit in certain cases, which include a physical commitment to deliver to a client the commodity obtained via the exchange and transactions in which the buyer takes delivery in the front-month to subsequently sell the product on a later-dated contract, according to the notice.
The exchange may also approve exemptions in the case of a financial institution needing to have a short position bigger than the limit to be able to finance traders’ inventories, in the case of the cocoa and robusta coffee contracts, it said. The exchange may decline an application for a delivery exemption and there will be no right of appeal, according to the notice.
The exchange unveiled its plans for delivery limits in February, almost two years after Anthony Ward of Armajaro took delivery of 240,100 metric tons of cocoa (or 24,010 contracts) on the NYSE Liffe exchange in London in July 2010, the Financial Times reported at the time, citing unidentified traders. The delivery was the biggest from the exchange since 1996 and helped drive prices to a high, according to the newspaper. Ward declined to comment when contacted by Bloomberg at the time.
In response, a group of 16 cocoa consumers wrote to NYSE Liffe to complain about a lack of transparency in the market, according to a copy of the letter obtained by Bloomberg News. The exchange started publishing trader holdings positions last year to increase transparency.
Delivery limits will be reviewed every six months and changes will be informed via exchange notices and will come into effect three delivery months later, according to NYSE Liffe.