Reuters: Regulatory News: US CFTC probing 2011 cotton market ructions-FT

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US CFTC probing 2011 cotton market ructions-FT May 23rd 2012, 22:50 Wed May 23, 2012 6:50pm EDT May 23 (Reuters) - The U.S. Commodity Futures Trading Commission has opened an investigation into the volatile trading and large contract deliveries that roiled the cotton market a year ago, the Financial Times reported on Wednesday. The CFTC's enforcement division has interviewed traders about the large volume of cotton bales that were delivered against the IntercontinentalExchange's benchmark U.S. futures contract last summer, the newspaper reported, citing industry executives and companies contacted by the CFTC. "We have been informally interviewed by the CFTC," the FT quoted an unnamed official at a trading house as saying. A CFTC spokesman declined to comment on the report. The enquiry, which the FT reported was intensifying after CFTC surveillance staff made initial enquiries a year ago, is one of hundreds that the CFTC initiates in a given year, the majority of which do not result in formal action. But it will come as little surprise after what global commodity trading house Glencore called an "unprecedented period of volatility" in the market. ICE cotton futures soared from U.S. 60 cents a lb in August 2010 to a record of $2.27 in March -- and then eventually dropped to about 96 cents by the end of October 2011. Amid the rise and fall, contractual defaults soared, leaving many big traders nursing losses in the hundreds of millions of dollars. Ructions in the physical market made their way into the regulated futures exchange during the ICE delivery period for the May and July cotton contracts, traders have said. As most U.S. farmers had sold almost all of their crop in the first quarter, much earlier than usual as they rushed to cash in on record prices, any traders that had sold short the futures contract had to scramble to pay up for scarce bales. Only U.S. cotton can be delivered to the exchange. Data from ICE Futures showed that of the 3,928 lots delivered against the tape of the May cotton contract, a total of 3,898 lots were stopped by Term Commodities, meaning they took delivery of cotton at expiry. Traders believe Term was acting on behalf of Allenberg Cotton Co, the world's biggest trading merchant, part of the Louis Dreyfus empire. Representatives of Allenberg were not available to comment. The FT cited one unnamed cotton trader as saying that the CFTC had asked him whether Dreyfus had declined to bid on cotton it was offered outside the exchange. The CFTC is seeking information from executives and traders from merchants including Louis Dreyfus, Olam International, Cargill, Noble Group and Glencore, the FT reported. It said the companies would not comment or did not answer calls. In the year to September 2011, the CFTC's enforcement division filed 99 actions, 74 percent more than the previous year. It opened a total of 450 investigations. Link this Share this Digg this Email Reprints

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