CME CME Group Inc

On Monday, CME Group Inc. (CME) announced a hike in daily trading price on its corn futures and derivatives as soon as it received the green signal from US’ Commodity Futures Trading Commission (CFTC) to lift the limit on the trading price of the commodity. Chicago Board of Trade (CBOT) corn prices currently trade at about $7 a bushel with a limit of 30 cents per bushel.

Accordingly, the daily trading price on CBOT corn futures and options as well as mini-sized corn futures has been hiked to 40 cents per bushel from the existing 30 cents. However, the rise in limits will be according to the rules and regulations of CBOT. Moreover, corn trading on hiked prices will be initiated on August 22, 2011.

Additionally, the trading price band for CME’s corn derivatives is proposed to range from 40 cents to 60 cents per bushel when at least two contracts close at limit bid or limit offer on the previous trading day. Although the higher-end was expandable in the range of 45–70 cents per bushel, the company has proposed to stick to 60 cents for the time being.

CME’s stand on the proposed 60-cent as maximum limit involves the concern of potential escalating margin requirements and a lack of capital to do business with the expanded limits. However, an increase from 30 cents was necessary since the company believes it is really a low price, yielding only about 4.4% of current futures prices.

Nevertheless, the rise in price limit bodes well for CME’s corn derivative business since the recent supply crunch blends well with the rising demands in the corn market, thereby substantially supporting the rising prices and volatility. Till date in 2011 alone, 70 contract months have been settled at or beyond the initial price limit, compared to 36 contract months in all of 2010. This signifies the expanding market for corn commodity. The increased price limits will further boost the market and add to CME’s volumes.

Overall, we believe that growth in its derivatives market is slowing in all the sectors that are crucial for CME’s long-term growth and sustenance, primarily when NYSE Euronext Inc. (NYX) is on the verge of becoming a global derivative exchange leader with its long awaited amalgamation with Deutsche Boerse.

Even other operators such as IntercontinentalExchange Inc. (ICE) and CBOE Holdings Inc. (CBOE) are attempting to penetrate the rapidly emerging markets.

 
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