Comment Text:
I oppose the current proposal due to the structure. I do not oppose increases in storage rates per se. CME should propose a VSR structure that spans the grain contracts.
When CME finally proposed VSR in the wheat contract it was after a year or more of insisting that there was nothing wrong with the contract. After a year or more of battling with the grain industry and finally with the threat of a CFTC mandated solution, they proposed the VSR and the industry recognized that VSR was a viable solution to the problem.
Then in an industry meeting when Dave Lehman was asked when CME would begin considering when to implement VSR on the other grain contracts, the response was that the volume and open interest in the other grains was so much greater that the need for VSR would never happen.
Long and short of it is if they had applied the same process to all of the Grain contracts we would not be going through this hurry up process now.
I also believe that the process should be dynamic. Why shouldn’t storage rates for the grains covered by the contracts be discovered by the market rather than set be CME.
I have also been concerned that CME is more responsive to the needs of the big players in the markets. During the discussions about the wheat contracts the big players were longs and benefitted from lower storage rates. Lower storage rates translated into more volume for the exchange. Today my perception is that the large funds are mostly short and thus the funds benefit from higher storage rates and therefore wider spreads. This perception may or my not be correct and should not be relied upon other than to understand the point that storage rates should be discovered by the market and now t arbitrarily set by the exchange.
I am available for questions should they arise.
