CME to make up for losses after erroneous wheat report

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CME Group Inc last week said it would pay for losses incurred after the exchange issued an erroneous report on the amount of wheat registered for delivery with the Chicago Board of Trade.

Some traders said they lost money because of CME's mistake and were considering filing claims, but they were not certain how their losses could be quantified.

These traders said the CME's error rippled through the CBOT corn market and Kansas City Board of Trade wheat futures. Traders often trade corn and wheat futures in tandem due to the strong correlation between the two markets.

"The company will assume responsibility for actual losses associated with this reporting error," CME said in its statement, what was released more than half a day after the mistake.

The exchange said it "will establish a claims process for customers and details will be posted to the website as soon as possible." It did not explain what losses it will cover.

A spokesman declined further comment.

CME reports Board of Trade grain registrations as of 4 p.m. CST time (2200 GMT) on each business day and listed 164 contracts of CBOT wheat on Thursday, unchanged from Wednesday.

At 5:46 p.m., CME corrected the report to include 2,000 contracts of wheat registered by The Andersons, a commercial grain handler that operates several CBOT wheat delivery elevators, according to a statement from the exchange.

By 8:15 p.m. CST, CBOT reported that commercial firms intended to deliver 2,119 contracts of wheat against the expiring December contract. The figure was well above traders' estimates for zero to 1,000 contracts, which were based in part on earlier reports of low registrations.

The large deliveries caught traders by surprise while the markets were open for business, pressuring the nearby December wheat futures contract.

The December contract fell 24-1/2 cents, or 2.8 percent, its largest daily decline in nearly three weeks, to settle on Friday at $8.44-3/4 per bushel.

It also lost relative to deferred contracts on spreads as a result of the larger-than-expected deliveries, analysts said. The discount for December wheat compared to March, for example, widened to 18-3/4 cents from 16-1/4 cents on Thursday.

Registration with the CBOT, which is owned by the CME, makes a product eligible for delivery but does not guarantee it will be delivered. Still, grain registered on the night before first notice day for deliveries is often delivered the next day.

Heavy deliveries tend to pressure front-month futures prices.

CALCULATING LOSSES

Todd Thielmann, a trader and broker on the CBOT floor, checked the registration report at 4 p.m. on Thursday and determined the 164 contracts listed at the time did not pose a significant risk to his long position in nearby December wheat.

He said he lost money in wheat and corn futures due to CME's error. Corn is related to wheat because both grains are used to feed livestock.

"I felt I could stay in my trade without any problem" because of low wheat registrations, he said.

"I lost some money and I didn't feel like I did anything wrong. I felt like I was responsible in assessing the risk."

Thielmann will consider filing a claim if CME agrees to compensate for trading losses.

The Andersons said CME "addressed the situation appropriately" and that it suffered no losses.

For some traders, the error was CME's latest misstep in the grain markets.

Earlier this year, the exchange was forced to delay the implementation of nearly non-stop trading because it had not sought the necessary approval from regulators.

CME in May expanded trading to 21 hours a day from 17 hours after abandoning an initial plan for 22 hours of trading due to customer complaints.

"If they want to trade around the clock, they need to get their act together on basic announcements," ABN AMRO analyst Charlie Sernatinger said.


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