"We think the smaller size of the Mini "C"' provides greater access and creates important new hedging and investment opportunities in a market already known for its volatility and liquidity, which in turn, will increase the coffee market's overall liquidity and pricing efficiency," said Mark D. Fichtel, President and CEO of the New York Board of Trade. "This contract also satisfies a coffee industry need and appeals to a new group of users within the speculative community."
The cash settled Mini "C" (Trading Symbol - MK) carries many of the same contract specifications as the Regular "C" (KC), which calls for delivery of 37,500 lbs. of exchange-certified, washed Arabica coffee grown in nineteen countries throughout the world. The Mini's exchange fees are approximately one-third those of the Regular contract, and while the Mini is not fungible with the Regular contract, it can be used as a margin offset. The Mini's cash settlement feature removes the physical delivery issue and allows the contract to be settled at expiration at a price based on the last 5 bracket periods of trading in the corresponding Regular contract on the last trading day of the Mini contract (excluding spread trades). The expiration day for the Mini is the day before the first notice day of the Regular "C" contract.
The Mini "C" lists contract months for February, April, June, August, and November. Each contract corresponds to the Regular "C" Contract listed for the following month (e.g. February for March, April for May). The Mini "C" begins listing with an April 2002 contract. No options contracts will be offered on the Mini "C." Traders can execute against actuals (AA), however, in which a futures contract can be exchanged for the cash commodity (Exchange for Physicals - EFP).
The minimum tick size for the new contract is five points, which is worth $6.25 as opposed to $18.75 in the Regular contract. The contract's lower margin levels and trading fees are also designed to expand market access to users for whom the Regular contract may not be suitable.
"The Mini contract has already generated considerable interest in the industry among a broad array of groups," said Mr. W.C. "Dub" Hay, 1st Vice President, Investments at UBSPaineWebber. "I think specialty coffee roasters and smaller coffee retailers will find the small size of the contract useful to hedge their risks, while the speculative community will be drawn to the contract's characteristic volatility."
While the Mini "C" will trade in NYBOT's traditional open outcry trading environment on NYBOT's Coffee, Sugar & Cocoa Exchange (CSCE), the contract will utilize NYBOT's new customized Electronic Order Routing (EOR) system. The EOR system allows users who are connected to NYBOT's application program interface (API) the ability to use the EOR process to send all types of orders over the Internet directly to the trading floor, which are then executed by a NYBOT member through open outcry. The trade is matched, cleared and confirmed through the new system.
The NYBOT also intends to use its Mini "C" contract in its work with the World Bank, which will provide crop price protection to developing coffee producing countries throughout the world. Such a program seeks to increase the access to proven risk management tools for numerous coffee farmers who are struggling to make a profit growing coffee.
The New York Board of Trade (NYBOT) is the parent company of the Coffee, Sugar and Cocoa Exchange, Inc. (CSCE) and the New York Cotton Exchange (NYCE). Through its two exchanges and their subsidiaries and divisions NYBOT offers an expanding range of agricultural, currency and index products. Information about the New York Board of Trade can be found at www.nybot.com
