* CME raises contract registrations after initial report
* Increase catches traders by surprise
* Traders contemplate claims against exchange
By Julie Ingwersen and Tom Polansek
CHICAGO, Nov 30 (Reuters) – CME Group Inc on Friday
said it would pay for losses incurred after the exchange issued
an erroneous report on the amount of wheat registered for
delivery with the Chicago Board of Trade.
Some traders said they lost money because of CME’s mistake
and were considering filing claims, but they were not certain
how their losses could be quantified.
These traders said the CME’s error rippled through the CBOT
corn market and Kansas City Board of Trade wheat futures.
Traders often trade corn and wheat futures in tandem due to the
strong correlation between the two markets.
“The company will assume responsibility for actual losses
associated with this reporting error,” CME said in its
statement, what was released more than half a day after the
mistake.
The exchange said it “will establish a claims process for
customers and details will be posted to the website as soon as
possible.” It did not explain what losses it will cover.
A spokesman declined further comment.
CME reports Board of Trade grain registrations as of 4 p.m.
CST time (2200 GMT) on each business day and listed 164
contracts of CBOT wheat on Thursday, unchanged from Wednesday.
At 5:46 p.m., CME corrected the report to include 2,000
contracts of wheat registered by The Andersons, a
commercial grain handler that operates several CBOT wheat
delivery elevators, according to a statement from the exchange.
By 8:15 p.m. CST (0215 GMT), CBOT reported that commercial
firms intended to deliver 2,119 contracts of wheat against the
expiring December contract. The figure was well above traders’
estimates for zero to 1,000 contracts, which were based in part
on earlier reports of low registrations.
The large deliveries caught traders by surprise while the
markets were open for business, pressuring the nearby December
wheat futures contract.
The December contract fell 24-1/2 cents, or 2.8
percent, its largest daily decline in nearly three weeks, to
settle on Friday at $8.44-3/4 per bushel.
It also lost relative to deferred contracts on spreads as a
result of the larger-than-expected deliveries, analysts said.
The discount for December wheat compared to March, for example,
widened to 18-3/4 cents from 16-1/4 cents on Thursday.
Registration with the CBOT, which is owned by the CME,
makes a product eligible for delivery but does not guarantee it
will be delivered. Still, grain registered on the night before
first notice day for deliveries is often delivered the next day.
Heavy deliveries tend to pressure front-month futures
prices.
CALCULATING LOSSES
Todd Thielmann, a trader and broker on the CBOT floor,
checked the registration report at 4 p.m. on Thursday and
determined the 164 contracts listed at the time did not pose a
significant risk to his long position in nearby December wheat.
He said he lost money in wheat and corn futures due to CME’s
error. Corn is related to wheat because both grains are used to
feed livestock.
“I felt I could stay in my trade without any problem”
because of low wheat registrations, he said.
“I lost some money and I didn’t feel like I did anything
wrong. I felt like I was responsible in assessing the risk.”
Thielmann will consider filing a claim if CME agrees to
compensate for trading losses.
The Andersons said CME “addressed the situation
appropriately” and that it suffered no losses.
For some traders, the error was CME’s latest misstep in the
grain markets.
Earlier this year, the exchange was forced to delay the
implementation of nearly non-stop trading because it had not
sought the necessary approval from regulators.
CME in May expanded trading to 21 hours a day from 17 hours
after abandoning an initial plan for 22 hours of trading due to
customer complaints.
“If they want to trade around the clock, they need to get
their act together on basic announcements,” ABN AMRO analyst
Charlie Sernatinger said.
