VIDEO: CME Talks Corn Price Limits

[Palouser]

The CME wants to keep the markets from feezing up and give them more room to sell contracts - so regardless of margins they get more money. That's the deal.

The volatility is your friend? Well, it's the CME's friend. Similarly, it's my opinion that is why they don't want to see farers able to enforce the face vvalue of any CBOT contracts. It introduces true market costs of commodities and they believe would gum up the fast churning of contracts during times of volatility. Taking one delivery could ruin your whole day. True market price discovery is discouraged for that reason.  [This is more or less my opinion since they refuse to comment on this kind of thing - but STILL have language in their lit about how the ability to enforce contracts is the cornerstone of market integrity. ...... Yeah.

[dapper7]

yep, one word, VOLUME!!! looks the days of the small farmer hedger are about done.

[timetippingpt]

Palouser, d7, all are right on this one. Or said more correctly, they are VERY right on this one.

Bigger limits in my view are only helpful if you own a BIG computer running algorhythms that is front-running the market in milli-seconds. Bigger limits allow for bigger flash crashes and bigger profits for the groups actually running the market.

[marketeye]

dapper7:

The explanation I hear from the critics on the floor put it this way. Once the CME Group (once the CBOT) became a public entity vs. a private company, the focus has been shifted to please the shareholders. To do that, the CME Group needs to trade as much volume as possible to keep the revenue up, Wall Street happy, and ultimately the stakeholders. And recently, the CME Group's stock dropped, the shareholders are not happy. Obviously, a way to keep the volume high is to keep the market trading as long and as much as possible. Therefore, if the daily corn price limits are raised this allows less likelihood the corn market will hit limit up or down and stop CME Group money from coming in. 

The members say the market doesn't stop when the daily price limit is hit, because you have options and swaps. Plus, the members get a discount on their trading fees vs. all other traders in the world that pay full price. So, the CME Group makes less off of the members' trades vs. the rest of the world. And when you consider 75%-80% of the contracts are executed electronically, well, you do the math on where the CME Group is relying on where the bulk of their trade revenue is coming from.

In addition, I'm told that when the CME Group bought the CBOT there was a moratorium put into place that stated the CME Group would not make any changes without the input of the members. Well guess what? That moratorium ends in a year, or at least soon. So the members' power is fading.

Again, I'm told this commentary, it's not mine. But, I thought you all would find it interesting talk going on behind the scenes.