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CFTC Seeks to Add More Detail to Agricultural COT Reports; Energy Next?

Due to evolving trading practices and the recent influx of funds into the futures and options market arena, the Commodity Futures Trading Commission (CFTC) said Tuesday that it will begin publishing an additional Commitments of Traders (COT) report in January that will show aggregate futures and options positions of noncommercial, commercial and index traders in 12 selected agricultural commodities. The new report, which is to be published on a two year, pilot-program basis, could be expanded to other commodities such as energy if deemed successful.

On Jan. 5, the commission will begin publishing the new weekly COT report, entitled "COT-Supplemental." Positions reported in the new "index traders" category will be drawn from both the current noncommercial and the commercial categories. Coming from the noncommercial category will be positions of managed funds, pension funds and other institutional investors that generally seek exposure to commodity prices as an asset class in an unleveraged and passively-managed manner using a standardized commodity index, the CFTC said.

Coming from the commercial category will be positions of entities whose trading predominantly reflects hedging of over-the-counter (OTC) transactions involving commodity indices -- for example, swap dealers holding long futures positions to hedge short OTC commodity index exposure opposite institutional traders such as pension funds. The CFTC noted that the four current COT reports will continue to carry commodity index traders in the same commercial and noncommercial categories in which they now appear.

"I think it is a good idea, but I would like to see the funds segregated out from those who are hedging their swaps book," said Ed Kennedy of Commercial Brokerage Corp. "While it is an improvement, we will have to see what happens. We will also have to see if the commission brings it over to energy down the road."

In its analysis, the commission found that prior to 1991, both the long and the short sides of commercial open interest listed in the COT reports represented traditional hedgers (producers, processors, manufacturers or merchants handling the commodity or its products or byproducts). "Since that time, trading practices have evolved to such an extent that today a significant proportion of the long-side open interest in a number of major physical commodity futures contracts is held by so-called nontraditional hedgers (e.g., swap dealers), while the traditional hedgers may be either net long or net short (more often, the latter)," the commission said.

In a June Federal Register notice titled, "Comprehensive Review of the Commitments of Traders Reporting Program," the CFTC asked whether, in light of these changes, the COT report could still reliably be used to assess overall futures activity by persons who are directly involved in the underlying physical commodity markets. Based on the comments received, and the commission's own review, the CFTC determined to begin publishing the new COT report, showing the aggregate positions of index traders in a separate category.

"The Commission's decision to begin publishing this additional COT report illustrates the CFTC's commitment both to maintain an information system that keeps pace with changes in markets and trading practices and to provide the public with accurate and timely data regarding futures and option markets," said CFTC Chairman Reuben Jeffery.

Published by the CFTC, the COT reports are weekly reports that show aggregate positions of commercial and noncommercial traders in certain futures and options markets. The Commission currently publishes four COT reports: Futures-Only COT (both long form and short form) and Futures-and-Options-Combined COT (both long form and short form). The four existing COT reports, which cover over 90 markets, will continue to be published, with no changes in form, format or timing.

The 12 commodities covered by the new report, and the respective exchanges on which they are traded, are corn, soybeans, wheat, soybean oil on the Chicago Board of Trade, wheat on the Kansas City Board of Trade, cotton No. 2, coffee C, sugar No. 11, cocoa on the New York Board of Trade, live cattle, lean hogs and feeder cattle on the Chicago Mercantile Exchange. The commission said it will also publish comparable weekly data for 2006 for the 12 markets covered by the report in order to allow users of the report to view the new data in context.

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