It's Official: ICE Sets Cotton Position Limit

Tyler Durden's picture

Earlier today we noted that the ICE was considering establishing size limits in [insert surging commodity here], in this particular case cotton. This has just been formalized as per the press release below, and explains why cotton is among the worst performing softs today. If gold continues refusing to play along with the script, look for the CME to do something comparable with gold and silver (for the third time) shortly. But never, and we repeat never, expect the Globex to do something crazy like hiking margin requirement on ES.... Ever.

From the ICE:

Market Regulation Advisory

Cotton No. 2® Notice Period Exemptions

Effective with the March 2011 Cotton No. 2® futures contract, ICE Futures U.S.®, Inc. (“Exchange”) will require Cotton market participants who expect to carry positions in excess of 300 contracts into the notice period to file an exemption request form with  the Market Surveillance Department. To be eligible for a notice period exemption under Exchange Rule 6.26 (Hedge Exemption), applicants must request a specific long or short position sufficient to cover the applicant’s bona fide hedging requirements for the contract month’s delivery month and the next succeeding calendar month.

Information must be provided to demonstrate that the requested position limit is economically appropriate to the reduction of risks arising from the potential change in the value of the assets owned by the applicant such as inventories and fixed price physical purchases or liabilities owed such as fixed price physical sales.

An exemption request must be approved by the Exchange in order for a market participant to carry a Cotton No. 2® futures  position in excess of the 300 contract spot month speculative position limit into the Notice Period.

Pursuant to Rule 6.26, exemption requests must be received by the Exchange no later than five (5) business days prior to the first notice day of the contract month. Thus, exemption requests for the March 2011 notice period should be submitted by February 14, 2011. Any exemptions granted will be for a specified contract month only and should not be viewed as relief from the responsibilities all traders have to transact their business in a manner consistent with an orderly market.

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redpill's picture

"Market Surveillance Department"

Orwell would struggle to come up with a more authoritarian sounding name

Sudden Debt's picture



malusDiaz's picture

Sounds like price controls...


First limit quantity, Then limit price.


"Why do you need to buy that much cotton?"   "What are you going to do with that much gold / silver? you can't possibly USE it for anything, so we're going to cancel your contract."

DosZap's picture

Let em', they do that, and PM's WILL really skyrocket, one way or the other black market.

What happens when anyone had done similar controls before?.

EscapeKey's picture

They really are trying to stop the tide.

They should try constructing levees out of all the cash they're printing.

NOTW777's picture

can we get a comment ben. oh, you have nothing to do with this - ok

did u see egypt

whatsinaname's picture

The Messiah sees no evil and hears no evil.

FoieGras's picture

ES margin requirements were hiked in Sep/Oct 2008 if I recall correctly. 

flaunt's picture

If specs temporarily liquidate commods and put those profits to work in unloved gold and silver, watch out.  Margin hikes will surely come but the specs are mostly gone at this point so the effect will be minimal... For now.

TooBearish's picture

Sell de kottin mon!

Fritz's picture

Let me guess....JPM will get an exemption.

NOTW777's picture

yes, and if u got an obamacare waiver, it comes with a cotton exemption

DosZap's picture

What?, no more free tampoooons?

scratch_and_sniff's picture

ES? ...sure who feckin needs it?

Ecoman11's picture

This is Riganomics.

NOTW777's picture

hilarious exchange between CEO of NEM who just offered cash for FRG and the clowns on fast money who are short.


bob_dabolina's picture we can have limit up days in other commodities.

Yen Cross's picture

CME cotton close off .049 on the close

trav7777's picture

Establish a position limit of 0 for all longs and just be done with it

godzila's picture

sorry but can anyone explain what's wrong with position limits, especially in soft comos ?

AbandonShip's picture

I believe it's the timing of these position limits that's questionable.  Why now?  One answer is because the prices are rising due to inflationary monetary policy and that's not acceptable for the Central Bankers as one of their goals is stable prices.  Establishing position limits instantly throws cold water on the price and produces the low/stable prices CBs love to see. Had the limits been in place all along no one would object.  To put it crudely:   Policy = Good, Volatile Policy = Bad

The other reason generally proffered for suspiciously timed margin hikes and position limits is that the House (i.e., ICE, CME, etc.) is protecting itself as the wager and pot size increase (sorry for the over use of gambling terminology but I think it fits well).

godzila's picture

Ok I see your point and actually concur. Was under the impression that Tyler was somehow upset by the actual principle.


buzlightening's picture

Supreme move in cotton position limits with the silver cftc investigation nearing 3 years now!! What a bunch of vampire squidding bastards all the live long day!!  Sucking the ever livin life out of the host working class! rat bastards all!!

TooBearish's picture

I dunno why these fuks are so obsessed with long specs ramping futures and having limits let em ramp em to the moon and let high prices cause producers to add capacity, hire workers and sell forward to the specs WTF is wrong with that?

Lord Koos's picture

In the case of food commodities, ramping = starvation.

pacu44's picture

Yeah, Free Market Capit=lism at its finest...

Henry Rearden's picture

Tyler I Love you and your Blog Zerohedge, but this is borderling worthless information.  Who cares what the margin requirement are on anything.  They could increase the margin requirments on all products to infinity, the truth of the matter is that its behind position limits.  And when it comes to position limits, they only limit the amount of short contracts you can have.  Never the longs.  Never.  What if you are a shirt producer in China, shouldn't you be able to buy all the cotton in the world to produce Justin Beeber Concert T-shirts? 

The anwser is Yes you should be able to buy all the cotton in the world to produce Justin Beeber T-shirts, but its a horrible, terrible future expectation of society.  

Cotton and rice are jumping on the cyclones in Australia, not because average Americans are getting squeezed on commodity prices.  And not because people are there on both sides to create an equilibrium in that commidity's price.

Moreover, I doubt the average reader and blogger here coult tell me the difference between a cyclone and a hurricane without looking it up on Wikipedia.

AbandonShip's picture

Henry:  I missed the part of the ICE statement above that mentioned this position limit was *only* on the short side.   It states it's for positions "in excess" of 300 contracts.  Sounds like a long-only position limit to me.  Please clarify your statement.

Yen Cross's picture

Ohh Darn I made the Mistake of venturing into slightly responded into ville. Think long and Hard before you post here again. I have a question for you. What is the difference between h-1 and m-5. Thank you.

CU1981's picture

Mark this post !! ;-)

It will all be blamed on those evil speculators....


Nice pickup TD, when they raise the ES margins, look for a PM flight to safety!!



Expat's picture

My understanding is that the limit applies only to the front month and then only up to the first notice (which is five days prior to the first business day of the month).  So, you can still hold 5000 contracts in the front month, but you have to roll them before the first notice. 

This is designed to avoid spqueezes and manipulations.