CME is going to Regulate the differed grain contracts again

 

CME sent out an update on some test that they where doing?  Apparently they turned off the implied spreading functionality on corn futures.  First off, I never received any notice that they turned it off to begin with.  I was under the impression that the bull spreading in the grain was because they were more bull spreaders then bear spreaders and the spread went up...  But now the CME "Local Government",,, now says that the test period is over, hmmm.  Ok in this day of transparency, were are the actual numbers to the test.  I 'm having a hard time believing, that the volume in spreading didn't go up, because of the free non-restricted atmosphere that the test period created.  In my small office I traded 85% more spreads when the spread began to move, remember the spread is two orders, long and short. 

Assuming the CME boys shut  it off in Sept 1, the CN11 vs. CZ11 was trading at +22.00.  When the news came out yesterday that the testing period was over and the CME was again going to regulate the Differed contracts and keep them in line with the front months the spread topped out at +98.00 and currently 1 day later its at +80.00...  This is wrong on so many levels I don't know were to begin.  Obviously I recommended bailing on all bull spreads,,, the game has changed...  In most all bull markets Government tends to make the highs, CME is the biggest local Government we have in the industry!  The CME based its decision to turn on the spread controls again because of Customer Feedback???  My guess is that Cargill and other commercials gave some negative feedback alright.  No one else new the test was even on!

The ripple affect this will have is unknown but I can assume the markets reaction on Wednesday the 19th of Jan showed it will impact the outright futures as well.  Numbers in the outright spreads can be over a quarter of million based on the CFTC data, and since the differs are now regulated, it may be wise to be long the CZ12 and CZ13 on any breaks.  I would complain, but to whom? 

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view as web page January 19, 2011 Implied Corn Spreads Reinstated Effective Trade Date January 31, 2011 From September to the end of December of last year, CME Group turned off the implied spreading functionality on corn futures. The objective of this test, which was recently extended through the end of January, was to determine if a more robust market, in terms of market participation, market depth and market liquidity, could be achieved in an environment without this functionality. From the beginning of this test, market performance was monitored against a wide range of objective measurement criteria to determine changes in the market. Unless there were clear improvements in the market, the assumption was that the implied spreading functionality would be reinstated at the end of the trial period. Based on our assessment of this data and customer feedback, it is our intention to reinstate the implied spreading functionality effective trade date January 31, 2011. CME Group will continue to look at methods of improving market quality including consideration of a partial implied spreading functionality where implieds provide support only to back month contracts. We will provide the market with significant advance notice before testing this or other potential modifications.  For the latest information on Corn futures and other Agricultural products, visit www.cmegroup.com/agriculture