Traders granted cash and carry exemptions had been required to agree to liquidate all long positions in the nearby contract month before the nearby contract rises to a premium to the second futures month. The modified procedure will require traders with cash and carry exemptions to liquidate any long positions in the nearby contract month in excess of the notice period speculative position limit before the nearby month rises to a premium to the second futures month.
The notice period speculative position limit is currently 500 contracts for both cocoa and coffee "C". The modified procedure will mean that any trader granted a notice period cash and carry exemption will have to reduce a long position in the nearby contract to 500 contracts or less before the nearby contract rises to a premium to the second futures month.
Traders applying for cash and carry exemptions will still be required to provide the Market Surveillance Department with their cost of carry and the minimum spread at which the trader will enter into a straddle position and which would result in an economic profit for the trader. The trader must also provide the quantity of stocks in Exchange-licensed warehouses it currently owns. Exemption forms are available upon request.
The following resolution has been added to Exchange rules:
(In the text of the amendments below additions are underlined.)
R-69. Procedure for Notice Period Arbitrage and Straddle ("Cash and Carry") Exemptions Granted Pursuant to Speculative Position Limit Rule 13.07
WHEREAS, pursuant to Speculative Position Limit Rule 13.07, the Exchange grants arbitrage and straddle exemptions during the notice period (hereinafter referred to as "cash and carry exemptions") for the Coffee "C" and Cocoa futures contracts based on the cost of carrying the physical commodity in an Exchange licensed warehouse and the anticipated profit of the trader carrying the physical commodity and straddle positions in such commodity;
NOW THEREFORE BE IT RESOLVED, effective with the December 2001 expiration in the Coffee "C" and Cocoa futures contract and for all subsequent expirations, the following procedure for cash and carry exemptions will be implemented:
- When applying for a cash and carry exemption, the trader must provide the Exchange with (a) the cost of carrying the physical commodity; (b) the minimum spread differential at which the trader will enter into a straddle position in order to obtain a profit, and (c) the quantity of stocks the trader currently owns in Exchange licensed warehouses; and
- When granted the cash and carry exemption, the trader shall agree that, (a) before the price of the nearby contract rises to a premium to the second contract month, the trader will liquidate any long positions in the nearby contract month that are in excess of the notice period speculative position limit for the particular futures contract, and (b) the trader will comply with all other restrictions or limitations placed on the trader as a condition to the grant of the exemption.
