London, 9 June 2011: Reuters

NYSE Liffe is considering new regulations for its London-based soft commodity contracts with possible steps including limits on the size of positions or deliveries, a senior official told Reuters. "What we are now looking at in respect of the London products, the softs, is if we should evolve the regulation of those and in what way," Ian Dudden, director of commodity derivatives at NYSE Liffe, said in an interview.

"We're looking at what may be the alternatives in respect of a number of different limit regimes, whether that is position limits, delivery limits or something more akin to a price backwardation limit. We are considering all of those aspects at the moment," he said.

NYSE Liffe's London-based soft commodity contracts are cocoa, robusta coffee and white sugar. The exchange also has several Paris-based agricultural contracts including milling wheat and rapeseed.

European commodity exchanges are under pressure to tighten regulation and improve transparency. Nicolas Sarkozy, president of G20 leader France, has said regulation is needed to rein in excessive speculation and volatility in world prices for key commodities.

Some European cocoa industry participants also sent a letter to NYSE Liffe last year complaining about the extent of speculation in the London market and a lack of transparency.

LARGE DELIVERY

The complaint was made in the build-up to the expiry of the July cocoa contract which saw British commodities firm Armajaro as the main receiver of the largest delivery in nearly 14 years. The July contract soared to a massive premium to the following delivery month, known as a backwardation, in the run-up to expiry.

Markets normally move into backwardation when nearby supplies are tight. It is much more common for nearby contracts to trade at a slight discount, or contango, to contracts for later delivery to reflect the cost of holding the commodity.

NYSE Liffe already has some delivery limits on Paris-based agricultural contracts. The exchange is also planning to provide similar information to the U.S. market's Commitments of Traders report in a weekly report.

The U.S. report provides a breakdown of net positions held by different groups such as commercials and speculators. Dudden said the weekly report is expected to be launched in the third quarter of this year for cocoa, robusta coffee and white sugar.

Some market participants have called for more uniformity in regulation between commodity markets across the globe.

"There is clearly a desire for greater harmonisation. I think they can be benfits for that but it is important to recognise that different markets have different characteristics. So it is not necessarily the case that the same answer will suit every commodity product," he said.

Ends --

By Nigel Hunt, Reuters – for Commodities Now.