DOCSLIB.ORG

CFTC Supplements Position Limits Proposal

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
CFTC Supplements Position Limits Proposal June 3, 2016 CFTC Supplements Position Limits Proposal The CFTC Supplements Its Position Limits Proposal by Revising the Proposed Definition of Bona Fide Hedging and Including a Provision that Would Permit Exchanges to Recognize Non-Enumerated Bona Fide Hedges and Other Exemptions SUMMARY On May 26, 2016, the U.S. Commodity Futures Trading Commission (the “CFTC”) released a supplemental notice of proposed rulemaking along with a proposed rule (the “Supplemental Proposal”) that would supplement and amend the proposed rule originally released by the CFTC in December 2013 (the “2013 Proposed Rule”) that would impose speculative position limits on positions held by traders in 28 physical commodity futures contracts, options and “economically equivalent” futures and swaps contracts. The Supplemental Proposal includes three key changes as compared to the 2013 Proposed Rule, each largely aimed at addressing concerns raised by commercial entities. First, the Supplemental Proposal would provide a new process allowing trading facilities, including designated contract markets (“DCMs”) and swap execution facilities (“SEFs”), to recognize certain positions in commodity derivative contracts as non-enumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt from federal position limits certain spread positions, in each case subject to CFTC review. Second, the Supplemental Proposal would amend certain definitions originally proposed in the 2013 Proposed Rule, notably including the definition of “bona fide hedging” for physical commodities. Lastly, the Supplemental Proposal would delay the requirement that DCMs and SEFs establish and monitor position limits on swaps where the DCM or SEF lacks access to sufficient swap position information. Comments on the Supplemental Proposal will be due 30 days after the Supplemental Proposal is published in the Federal Register. New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com BACKGROUND The CFTC’s proposed position limit rules generally include three components: (1) the level of the limits, which sets a threshold that restricts the number of speculative positions that a person may hold in the spot month, an individual month and all months combined, (2) exemptions from the limits for positions that constitute bona fide hedging positions and certain other types of transactions or positions, and (3) rules to determine which accounts and positions a person must aggregate for the purpose of determining compliance with the position limit levels.1 CEA section 4a(c) provides generally that federal position limits do not apply to positions that are shown to be “bona fide hedging positions.” CEA section 4a(c)(2), added to the CEA by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), directs the CFTC to narrow the scope of what constitutes a bona fide hedging position from the previous definition promulgated by the CFTC for the purposes of implementing the federal position limits on certain categories of physical commodity derivatives. The 2013 Proposed Rule2 sought to amend the CFTC’s existing pre-Dodd-Frank position limit rules (which only apply federal limits to certain futures and options contracts on nine enumerated agricultural commodities) by, among other things, adopting federal position limits applicable to positions in 28 exempt and agricultural commodity futures and option contracts and swaps that are “economically equivalent” to such contracts.3 Additionally, the 2013 Proposed Rule would require that DCMs and SEFs that are trading facilities (collectively, “Exchanges”) establish Exchange-set limits on such futures, options and swaps contracts. The 2013 Proposed Rule also would (i) revise the definition of bona fide hedging positions (including a general definition with requirements applicable to all hedges, as well as an enumerated list of bona fide hedges for which an exemption from position limits may be available), (ii) revise the process for market participants to request CFTC recognition of certain types of positions as bona fide hedges, including anticipatory hedges and hedges not specifically enumerated in the proposed bona fide hedging definition, and (iii) revise the exemptions from position limits for transactions normally known to the trade as spreads. 1 See generally 17 C.F.R. part 150, as proposed to be expanded and revised under the 2013 Proposed Rule and the Supplemental Proposal. 2 Recall that the 2013 Proposed Rule represented the CFTC’s second post-Dodd-Frank attempt at position limits rules following a successful court challenge to position limits rules that the CFTC had originally finalized in 2011. See Sullivan & Cromwell LLP, Court Vacates Position Limit Rules, October 1, 2012, https://www.sullcrom.com/siteFiles/Publications/SC-Publication-Court-Vacates- Position-Limit-Rules.pdf. 3 See Sullivan & Cromwell LLP, CFTC Proposes New Position Limits, November 18, 2013, https://www.sullcrom.com/siteFiles/Publications/SC_Publication_CFTC_Proposes_New_Position_Lim its.pdf. -2- CFTC Supplements Position Limits Proposal June 3, 2016 As noted above, the Supplemental Proposal would supplement and modify the 2013 Proposed Rule by delegating to DCMs and SEFs the authority to recognize certain exemptions from position limits, revising the proposed definition of bona fide hedging (and certain other definitions related to spread positons), and delaying the requirement that DCMs and SEFs establish and monitor position limits on swaps until such time as DCMs and SEFs have access to sufficient swap position information. THE SUPPLEMENTAL PROPOSAL A. DELEGATION TO EXCHANGES TO RECOGNIZE CERTAIN POSITIONS AS NON-ENUMERATED BONA FIDE HEDGES OR ENUMERATED ANTICIPATORY BONA FIDE HEDGES AND TO EXEMPT FROM FEDERAL POSITION LIMITS CERTAIN SPREAD POSITIONS The Supplemental Proposal proposes three sets of rules that would enable an Exchange to submit to the CFTC rules under which the Exchange could take action to (i) recognize certain non-enumerated bona fide hedging positions (“NEBFHs”);4 (ii) grant exemptions to position limits for certain spread positions;5 and (iii) recognize certain enumerated anticipatory bona fide hedging positions.6 Each of the proposed rules would establish a formal CFTC review process that would provide the CFTC with the ongoing authority to review all such actions by the Exchange. Notably, the Supplemental Proposal would therefore permit commercial end users to avail themselves of an Exchange’s NEBFH application process in lieu of requesting CFTC approval of an NEBFH, which would have required seeking a staff interpretive letter under section 140.99 of the CFTC’s regulations or seeking CEA section 4a(a)(7) exemptive relief. The proposed delegations to the Exchanges would be subject to significant CFTC oversight. Each of the three proposed processes requires that (i) an Exchange submit implementing rules subject to CFTC review, (ii) the Exchange’s standards for receiving the recognition of a bona fide hedge position or other exemption conform to the requirements under the statute,7 (iii) each Exchange’s actions under these processes be reviewed under the CFTC’s rule enforcement review program, and (iv) all Exchange actions under such implementing rules (including the recognition of any exemption) be subject to CFTC review. 4 See Supplemental Proposal at proposed section 150.9. 5 See Supplemental Proposal at proposed section 150.10. 6 See Supplemental Proposal at proposed section 150.11. 7 By way of example, the Notice of Supplemental Rulemaking notes that proposed section 150.9(a)(3) requires Exchanges that elect to process NEBFH applications to solicit information to allow it to determine why a derivative position satisfies the requirements of section 4a(c) of the CEA; proposed section 150.9(a)(4) requires Exchanges that elect to process NEBFH applications to determine whether a derivative position for which a complete application has been submitted satisfies the requirements of section 4a(c) of the CEA; and proposed section 150.10(a)(4)(vi) requires Exchanges that elect to process spread exemption applications to determine that exempting a spread position would further the purposes of CEA section 4a(a)(3)(B). -3- CFTC Supplements Position Limits Proposal June 3, 2016 1. Recognition of Certain Non-Enumerated Bona Fide Hedging Positions (“NEBFHs”) The Supplemental Proposal would permit Exchanges to recognize NEBFHs with respect to the proposed federal speculative position limits (see below for a summary of the proposed definition of “bona fide hedging definition,” as revised by the Supplemental Proposal, including the proposed list of enumerated “bona fide hedging positons”). Exchange recognition of a position as an NEBFH would allow the market participant to exceed the federal position limit, up to approved levels, to the extent that it relied upon the Exchange’s recognition unless and until such time that the CFTC notified the market participant to the contrary. The Supplemental Proposal would require market participants to report certain facts and circumstances attendant to a position to verify whether the position satisfies the requirements of the definition of a “bona fide hedging transaction or position” in the CEA.8 The Supplemental Proposal also proposes to require that all applicants submit detailed information to demonstrate why the position satisfies the requirements of the definition of bona fide hedging in the CEA and any other
Load more

Recommended publications
  • Sales Representatives Manual 2020
    Sales Representatives Manual Volume 4 2020 Volume 4 Table of Contents Chapter 1 Overview of Derivatives Transactions ………… 1 Chapter 2 Products of Derivatives Transactions ……………99 Derivatives Transactions and Chapter 3 Articles of Association and ……………… 165 Various Rules of the Association Exercise (Class-1 Examination) ……………………………………… 173 Chapter 1 Overview of Derivatives Transactions Introduction ∙∙∙∙∙∙∙∙ 3 Section 1. Fundamentals of Derivatives Transactions ∙∙∙∙∙∙∙∙ 10 1.1 What Are Derivatives Transactions? ∙∙∙∙∙∙∙∙ 10 Section 2. Futures Transactions ∙∙∙∙∙∙∙∙ 10 2.1 What Are Futures Transactions? ∙∙∙∙∙∙∙∙ 10 2.2 Futures Price Formation ∙∙∙∙∙∙∙∙ 14 2.3 How to Use Futures Transactions ∙∙∙∙∙∙∙∙ 17 Section 3. Forward Transactions ∙∙∙∙∙∙∙∙ 24 3.1 What Are Forward Transactions? ∙∙∙∙∙∙∙∙ 24 Section 4. Option Transactions ∙∙∙∙∙∙∙∙ 25 4.1 What Are Options Transactions? ∙∙∙∙∙∙∙∙ 25 4.2 Options’ Price Formation ∙∙∙∙∙∙∙∙ 32 4.3 Characteristics of Options Premiums ∙∙∙∙∙∙∙∙ 36 4.4 Sensitivity of Premiums to the Respective Factors ∙∙∙∙∙∙∙∙ 38 4.5 How to Use Options ∙∙∙∙∙∙∙∙ 46 4.6 Option Pricing Theory ∙∙∙∙∙∙∙∙ 57 Section 5. Swap Transactions ∙∙∙∙∙∙∙∙ 63 5.1 What Are Swap Transactions? ∙∙∙∙∙∙∙∙ 63 Section 6. Risks in Derivatives Transactions ∙∙∙∙∙∙∙∙ 72 Conclusion ∙∙∙∙∙∙∙∙ 82 Introduction Introduction 1. History of Derivatives Transactions Chapter 1 The term “derivatives” is used for financial instruments that “derive” from financial assets, meaning those that have securities such as shares or bonds as their underlying assets or financial transactions that use a reference indicator such as interest rates or exchange rates. Today the term “derivative” is used widely throughout society and not just on the financial markets. Although there has been criticism that they amplify financial risks and have a harmful impact on the Chapter 2 economy, derivatives are an indispensable requirement in supporting finance in the present age, and have become accepted as the leading edge of financial innovation.
    [Show full text]
  • A Glossary of Securities and Financial Terms
    A Glossary of Securities and Financial Terms （English to Traditional Chinese） 9-times Restriction Rule 九倍限制規則 24-spread rule 24 個價位規則 1 A AAAC see Academic and Accreditation Advisory Committee【SFC】 ABS see asset-backed securities ACCA see Association of Chartered Certified Accountants, The ACG see Asia-Pacific Central Securities Depository Group ACIHK see ACI-The Financial Markets of Hong Kong ADB see Asian Development Bank ADR see American depositary receipt AFTA see ASEAN Free Trade Area AGM see annual general meeting AIB see Audit Investigation Board AIM see Alternative Investment Market【UK】 AIMR see Association for Investment Management and Research AMCHAM see American Chamber of Commerce AMEX see American Stock Exchange AMS see Automatic Order Matching and Execution System AMS/2 see Automatic Order Matching and Execution System / Second Generation AMS/3 see Automatic Order Matching and Execution System / Third Generation ANNA see Association of National Numbering Agencies AOI see All Ordinaries Index AOSEF see Asian and Oceanian Stock Exchanges Federation APEC see Asia Pacific Economic Cooperation API see Application Programming Interface APRC see Asia Pacific Regional Committee of IOSCO ARM see adjustable rate mortgage ASAC see Asian Securities' Analysts Council ASC see Accounting Society of China 2 ASEAN see Association of South-East Asian Nations ASIC see Australian Securities and Investments Commission AST system see automated screen trading system ASX see Australian Stock Exchange ATI see Account Transfer Instruction ABF Hong
    [Show full text]
  • Table of Contents
    Trading Spreads and Seasonals Chapter 1 What Is a “Spread?” If you already know what a spread is, you may be tempted to skip this initial chapter. However, I advise against it. Besides being presented for those who know, it is presented here for those who are not sure, and also for those who know that they know that they don’t know. I have been amazed at the number of traders who show up at my seminars who do not know what a spread is. Additionally, they do not know its numerous purposes or its many uses. A Spread is... For purposes of this book, a spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around and state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. However, this course will not cover the long physicals, short futures types of spreads. Furthermore, for purposes of this course, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the futures exchanges. This explicitly excludes those exotic spreads that are put forth by some vendors but are nothing more than computer generated coincidences which will not be treated as spreads by the exchanges. Such exotic spreads as long Trading Spreads and Seasonals Bond futures and short Bean Oil futures may show up as reliable computer generated spreads, but they are not recognized as such by the exchanges, and are in the same category with believing the annual performance of the US stock market is somehow related to the outcome of a sporting event.
    [Show full text]
  • INTRODUCTION to COTTON FUTURES Blake K
    INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System Introduction For well over a century, industry representatives have joined traders and investors in the New York Board of Trade futures markets to engage in price discovery, price risk transfer and price distribution of cotton. In fact, the first cotton futures market contracts were traded in New York in 1870. From that time, the cotton futures market has grown in use, but still provides the same services it did when trading began. For the novice, futures market trading may seem chaotic. However there is a reason for every movement, gesture, and even the color of jacket the traders wear on the trading floor. All these elements come together to provide the world a centralized location where demand and supply forces are taken into consideration and market prices are determined for commodities. Having the ability to take advantage of futures market contracts as a means of shifting price risk is a valuable tool for producers. While trading futures market contracts may be a relatively easy task to undertake, understanding the fundamental concept behind how these contracts are used from a price risk management standpoint is essential before trading begins. This booklet will assist cotton producers interested in gaining or furthering their knowledge in terms of using futures contracts to hedge cotton price risk. Who Are The Market Participants? Any one person, group of persons, or firm can trade futures contracts. Generally futures market participants fall into two categories. These categories are hedgers and speculators.
    [Show full text]
  • Notes & Comments
    NOTES & COMMENTS THE TAX-STRADDLE CASES The use of commodity futures "straddle" or "spread" transactions to reduce tax burdens is a time-honored practice.' Because of their in- creased popularity over the past decade, tax straddles have recently re- ceived a great deal of attention from the Treasury Department2 and from Congress.3 The Treasury Department has issued revenue rulings disapproving of the practice 4 and has challenged thousands of tax re- turns in which taxpayers offset losses generated by straddle transactions against other income. 5 In the first case to reach trial, Smith v. Commis- sioner,6 the United States Tax Court denied the straddle losses claimed by the taxpayers because the taxpayers lacked the requisite profit mo- 1. 12 TAX NOTES 209, 209 (1981) (testimony of Secretary of the Treasury Donald T. Regan at his confirmation hearing before the Senate Finance Committee (Jan. 6, 1981)). 2. See IRS, EXAMINATION TAX SHELTERS HANDBOOK, reprinted in Silver Prices and the Adequacy ofFederalActions in the Marketplace,1978-80. HearingsBefore the Subcomm. on Com- merce, Consumer and Monetary Affairs of the House Comm on Government Operations, 96th Cong., 2d Sess. 368-69 (1980) (hereinafter cited as Silver Prices); Lewis, The Treasury'r Latest Attack on Tax Shelters, I1 TAX NOTES 723, 723 (1980). 3. See Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, §§ 501-509, 95 Stat. 172. This statute dramatically alters the tax treatment of commodity futures transactions by prospec- tively eliminating the claimed losses from tax straddles. Section 503 of the Act requires unrealized gains and losses in open futures positions to be valued by referral to their market prices on the last day of the tax year and to adjust taxable income accordingly.
    [Show full text]
  • Yield Curve Spreads Are Mean Reverting
    PRICING AND CHARTING YIELD CURVE SPREADS A guide to trading US and Au bond futures KEIRAN HORTH & GUY BOWER Contents 1. Basic Definitions 2. Using DV01s 3. Calculating Hedge Ratios 4. Directional Spreading Versus Hedging 5. Changing Slope of the Yield Curve 6. Factors Affecting the Shape of the Yield Curve 7. Charting Your Spread 8. Filtering Data 9. Alternate Method of Charting a Spread 10. Varying the Spread Ratio 11. Trading the Spread 12. When is a Spread Not a Spread 13. Some Spreading Research Ideas 14. Contract Specs and Trading Information Disclaimer Trading involves high risks, with potential for profits as well as substantial losses and is not suitable for all persons. No information in this document or related material should be considered advice or any kind. Propex suggest you seek advice from an independent investment professional as to the suitability of trading for your personal needs. Propex Derivatives Pty Ltd. Level 4, 299 Elizabeth Street, Sydney NSW 2000. Propex Derivatives Pty Ltd (Propex) is a Proprietary Full Participant of the Sydney Futures Exchange. © Propex Derivatives. Horth & Bower Introduction OK, let’s talk relative value. Spread trading is all about relative value. Spread trading is all about understanding how two (or more) markets relate to each other and recognising when there is opportunity based on current levels or a view on the future. Here we are going to look at some interest rate spreads, how to price them and how to chart them. For the newcomer, it is easy to get prices and yields mixed up given their inverse relationship.
    [Show full text]
  • Financial Lexicon a Compendium of Financial Definitions, Acronyms, and Colloquialisms
    Financial Lexicon A compendium of financial definitions, acronyms, and colloquialisms Erik Banks Financial Lexicon A compendium of financial definitions, acronyms, and colloquialisms ERIK BANKS © Erik Banks 2005 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2005 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y.10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 1–4039–3609–9 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress.
    [Show full text]
  • Futuresspreadsproductguide Or
    PRODUCT INTRODUCTION BenchMark Finance offers clients online trading trading Futures Spread as it involves two legs, in Futures Spreads from the main Exchange the clients will be charged two legs. around the world starting with Globex and rolling-out gradually to Europe and APAC Commissions for Futures spread are the same exchanges. Futures Spreads are tradable from as for Futures Contract. From 0 to 5,000 lots the awardwinning downloadable BenchMark per month they are visible on the Trader, web-based WebTrader, BenchMark Benchmark.bg. Above 5,000 lots per month Trader for iPhone, Android and iPad. the client can expect bespoke pricing. BenchMark Finance supports Limit and Market BenchMark Finance Futures Spread orders on Futures Spreads, Stop orders are Unique not supported. The initial margins listed in Selling Points Online contracts specification are the collateral per contract that clients must have in their • Roll over the next front month very easily. account to open a position. • Trade Futures Spread Strategies on With the introduction of Risk Based Portfolio agricultural products, oil and energies, base Margin on Futures Spread positions, metals, precious metals, bonds, currencies, BenchMark Finance will be able to apply lower shortterm interest rates, live stocks, softs and margins on spread positions, while stock indices from one trading platform and maintaining sufficient margin levels reflecting enjoy margin benefits. the actual risk on the client’s positions more closely. • Free access to Globex real-time market data for Benchmark’s customers. Clients must maintain the Maintenance Margins listed per Futures Spread contract in their account at all times. If the funds in an • Free Hightower report, the comprehensive account fall below this margin, clients will be daily research on the Futures markets subject to a margin call to either deposit more available directly through BenchMark’s funds to cover positions or close positions.
    [Show full text]
  • Wiley Finance : Derivatives Demystified : a Step-By-Step Guide
    Derivatives Demystified For other titles in the Wiley Finance series please see www.wiley.com/finance Derivatives Demystified A Step-by-Step Guide to Forwards, Futures, Swaps and Options Second Edition Andrew M. Chisholm A John Wiley and Sons, Ltd., Publication This edition first published 2010 C 2010 John Wiley & Sons, Ltd Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com. The right of the author to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered.
    [Show full text]
  • A Glossary of Securities and Financial Terms
    A Glossary of Securities and Financial Terms （English to Simplified Chinese） June 2014 CONTENTS A .................................................................................................................................................... 1 B .................................................................................................................................................... 8 C .................................................................................................................................................. 13 D .................................................................................................................................................. 28 E ................................................................................................................................................... 34 F ................................................................................................................................................... 40 G .................................................................................................................................................. 45 H .................................................................................................................................................. 48 I .................................................................................................................................................... 55 J ..................................................................................................................................................
    [Show full text]
  • The Economic Role of Traditional Commodity Futures Markets Anne E
    © 1985 by the American Enterprise Institute for Public Policy Research, Washington, D.C. All rights reserved. 1 The Economic Role of Traditional Commodity Futures Markets Anne E. Peck The concepts and techniques of futures trading have recently been introduced to markets for commodities vastly different from the agri­ cultural markets in which the system of trading first developed and to which it was largely constrained for nearly 100 years. In fact, metals futures markets were the only exceptions to the agricultural bounds of futures trading until 1972 and the introduction of currency futures markets. The de facto bounds arose in part from a regulatory vacuum. Before 1974 futures trading was regulated by the Commod­ ity Exchange Authority (CEA), a bureau in the U.S. Department of Agriculture. The CEA did not regulate the introduction of new futures markets, nor did it regulate futures markets other than those for domestic agricultural products (and it regulated those only after the initiation of trading had been shown to be a success). The absence of an explicit regulatory authority for all futures trading meant that innovative proposals in new products had to be approved by the regulators, if any, of the underlying markets. The original proposal of the Chicago Board of Trade (CBT) in the late 1960s and early 1970s to begin a futures market in securities issues is illustrative. The CEA had no interest in the proposal; but, since the proposal involved securities, the Securities and Exchange Commission (SEC) was interested. Indeed, the SEC asserted regu­ latory authority over the proposal and rejected it.
    [Show full text]
  • Grain Marketing Terms File A2-05
    Ag Decision Maker extension.iastate.edu/agdm Grain Marketing Terms File A2-05 Actuals – The physical commodities that are being • Economic cost breakeven selling price – The traded. price needed to recover all costs including the Arbitrage – The simultaneous purchase of opportunity costs associated with producing the commodities in one market and the sale of commodity. commodities in the same or different market. Arbitrage is profiting from a discrepancy in prices. Broker – One who executes futures trading orders for customers. The broker may be an employee in a local Basis – The difference between the futures price for office of a brokerage firm, or a floor broker or pit a commodity and its cash price at a specific location. broker executing orders on the trading floor. The nearby futures delivery month is usually used. • Brokerage – The fee charged by brokerage firms • Basis risk – Risk of change or variation in the for the execution of a transaction. Also called basis. commission. This fee may vary from firm to firm. • Even basis – A condition that exists when the • Brokerage house – An organization that buys local cash price is equal to the futures price. and sells for the accounts of customers. Also • Over basis – A condition that exists when the called Commission House or Wire House. local cash price is greater than the futures price. Also called positive basis. Cash market – The market in which physical • Under basis – A condition that exists when the commodities are bought and sold. Refers not only to local cash price is less than the futures prices. elevator companies and processors buying products Also called negative basis.
    [Show full text]