CME Group, the world’s largest and most diverse derivatives exchange, announced that the Chicago Board of Trade, its subsidiary, has submitted a petition to the Commodity Futures Trading Commission (CFTC) today for approval to clear corn basis swaps and calendar swaps for corn, wheat and soybeans. The products are to be traded over-the-counter and cleared through CME Clearing, which joined in the petition.
"Fundamental changes in global grain and oil seed markets are creating new challenges for market users, including the need to hedge increasingly volatile basis risks in grain and oilseed markets. CME Group is responding to market needs by innovating the first-ever cleared OTC Grain Swaps, which will offer market users the ability to hedge tailored risks in a centrally cleared environment," said Robert Ray, CME Group managing director of International Sales and Commodity and Equity Products. "These new Cleared OTC Grain Swaps, which can be used as a complement to our highly liquid grain futures and options contracts, will be subject to position accountability, transaction reporting, and margining and risk management standards that are comparable to highly successful futures contracts. As such, these new products will enhance risk management practices, improve transparency in the OTC grain swaps market and reduce counterparty credit risks for market users."
Corn basis swaps are additional tools to help the grain industry better manage overall risk. The swaps also help buyers and sellers manage the risk of price differentials between futures delivery points and local markets. Calendar swaps, which are based on the average daily settlement price for the corresponding underlying futures contract during the final month of clearing the swap, offer another way to manage price volatility. The exchange must receive a CFTC exemption to clear the agriculture swaps, as required by the Commodity Futures Modernization Act of 2000. Pending CFTC approval, the swaps will be available later this year.