The Minneapolis Grain Exchange (MGEX) has entered into a licensing agreement with Data Transmission Network Corporation (DTN) of Omaha, Neb., and will develop cash-settled futures contracts using DTN data.
Kent Horsager, MGEX president and chief executive officer says, "We believe possibilities exist for creative, new cash-settled risk-management tools in many agriculture and non-agriculture product areas." MGEX will focus initially on agricultural contracts– corn and soybean futures and options launched on MGEX's electronic trading platform. The schedule is set for the third quarter of this year.
Bill Davison, corporate vice president of DTN, adds, "There is demand from commercial market users for flexible, innovative risk management products. Cash-settled indexes will go a long way in fulfilling that demand."
As part of this agreement with MGEX, DTN data will be used to calculate average daily prices for corn and soybeans. Those daily prices will make up the National Corn Index (NCI) and National Soybean Index (NSI), respectively. MGEX will use those averages as the settlement prices for corn and soybean contracts.
Cash-settled futures contracts differ from traditional futures contracts in that delivery is not an option; therefore, market participants can hold their outstanding futures positions until a contract expires without the delivery threat. This also allows for simultaneous expiration of futures and options.
On a cash-settled contract's last trading day, outstanding positions are settled in cash against an index calculated from public or private sources (in this case, DTN data), and defined in the contract rules.