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Cocoa, coffee and sugar traders saw an “Info-Flash” missive from NYSE Liffe, the London-based exchange, land on their screens this week.
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The newsletter laid out changes surrounding the London-based derivatives market’s reporting on traders and investors’ buying and selling.
The exchange, the home of benchmark cocoa, coffee and sugar contracts, has been publishing a report on the aggregate number of bullish and bearish positions of market participants, split in different categories such as commercial users and financial speculators. It is known as a “commitment of traders” (COT) report.
The changes, which amended the classification of some accounts and altered the positions held by various players in the market, only seems to have deepened the scepticism among some participants in the London-based soft commodities market surrounding the figures.
The reclassification prompted brokers Marex Spectron to tell clients in a note that some traders “felt like they had been misled for months. It will probably take a long time for them to rebuild a degree of confidence in these numbers”.
Liffe, owned by NYSE Euronext, initially moved to publish position data last October amid a greater push for transparency in commodities markets in London.
The exchange had been criticised for lacking in transparency and control following large price swings in cocoa and coffee. It finally moved to publish a weekly report, mirroring New York and Chicago counterparts.
The exchange launched a futures-only COT report for its cocoa, robusta coffee, white sugar and feed wheat futures contracts in October, adding on positions related to options deals in February.
This week it decreed that transactions linked to physical trades of commodities were not speculative and should fall under the “Producer/Merchant/Processor/User category”.
The decision came as many of the clearers were randomly reporting such deals under various categories.
Jonathan Parkman, co-head of agriculture at Marex Spectron, said re-categorisation had called the report’s credibility into question. “I’m glad that they have done something to correct it but it has taken them a while to do that.”
Some view that the move has only added to the cynicism among investors and traders, who were jaded about data from the start.
Kona Haque, analyst at Macquarie says many cocoa traders do not place a lot of importance on the figures in the first place.
“There was a degree of scepticism in the numbers,” she said, adding that the “recategorising has added a bit more confusion”.
Liffe seems to be slightly taken aback by the criticism.
The exchange said since launching the COT report, it had “been in regular dialogue with our market participants” and the recategorisation was done on the basis of feedback from the members.
It believes that the reclassification will add “to the precision and transparency of our combined COT report as a whole”.
One of the problems Liffe faces is that unlike COT reports in the US which are overseen by the Commodity Futures Trading Commission, the Liffe numbers are not policed by a regulator or governmental authority.
“[The reports] have to be looked at with the understanding that they are not the same as the CFTC reports as they are more voluntary,” says Keith Flury, analyst at Rabobank, the Dutch bank and large lender to agribusiness.