Comment Text:
Pending CFTC approval, the CME has issued an increase in spot position limits for live cattle. We respectfully object to this increase for the following reasons:
1) The CME has repeatedly changed the contract specs for live cattle the last several years with some of the said changes having not gone through delivery. We haven't fully seen the impacts of these changes on live cattle basis. Adding the increase in the spot position could compound any negative basis impacts by increasing the already changing choice percentage.
2) We believe that any changes to the spot position limit should be researched by either the CME, CFTC or an intendant academic institution. We don't believe any research has been presented or explored related to this change.
3) Making a change on a contract with existing open interest "changes the rules of the game mid-inning." As users of the cattle contract and often after first notice day, we make decisions at time of placement with certain basis assumptions. This potential change in an already listed contract with large open interest has the potential to cause economic harm on a decision made over 180 days ago at time of physical purchase.
4) We don't believe that this decision was fully vetted by industry users and industry associations. The CME has a VERY LONG HISTORY of seeking the opinions of users and associations, we believe they mistakenly didn't seek the input and research of the associations. We believe this was accidental, but shouldn't be overlooked.
5) We can support a change, but we prefer to support a change once all of the contract changes have been in place and basis convergence has been demonstrated. In addition, we can support a change that has been researched, proven academically and vetted within the industry. Finally, we can support said change only when we are able to view and combine the information of contract spec changes and academic/industry research within the confines of increasing limits. In summary- we want someone to study what will happen to basis with the changes in contract specs and the increase in spot limits.
Kind Regards,
Jordan Levi
Arcadia Asset Management
