1. Why is CME Group listing EU Wheat futures?
The decision to list CBOT EU Wheat futures was based on demand from our global commercial customers who are seeking a new instrument for managing European wheat price risk. Europe is one of the world’s most important wheat producing regions, and customers asked us to explore expanding our wheat offering to include a European wheat contract to help them address their hedging and merchandising concerns. Listing a physically delivered EU wheat contract at the CBOT is a natural complement to the widely traded CBOT Chicago Soft Red Winter (SRW) and KC Hard Red Winter (HRW) Wheat futures contracts, and will enable margin efficiencies.
2. What specific issues do the CME Group Wheat contracts address?
The CBOT EU Wheat futures contract is designed to provide an efficient mechanism for delivery, and reflect physical market practices. Our long history with physically delivered contracts shows that futures contracts that are the most effective hedging instruments typically exhibit carry and will trade in backwardation typically only when supplies are tight. The CBOT EU Wheat futures contract incorporates a carry structure into its delivery mechanism, which should facilitate a forward price curve similar to that of our CBOT SRW and HRW Wheat contracts. This provides tracking and convergence with the underlying cash market, and subsequently, effective risk management.
3. How does the delivery process work?
As with CBOT SRW Wheat, delivery of CBOT EU Wheat futures will take place via an electronic warehouse certificate, which provides benefits to both buyers and sellers during the delivery and subsequent carry process. By issuing a warehouse certificate, sellers have the ability to deliver warehouse certificates for wheat of the required quantity and quality through a CME Group approved warehouse.
Warehouse certificate holders have several options. Holders can continue to hold the warehouse certificate without requiring load-out and pay an administrative charge; transfer or sell ownership of the warehouse certificate on the cash market; cancel the warehouse certificate and request physical load-out of wheat; or re-sell the warehouse certificate in the futures market during the same or a subsequent delivery month. For further details on the delivery process, see European Union EU Wheat Futures Delivery Process.
In addition, the contract allows for an alternative delivery process that enables the substitution of wheat and delivery basis if the buyer and seller mutually agree. This greatly enhances the flexibility of the futures delivery process. Finally, the Exchange will institute an ongoing programme of inspections of the CME Group approved warehouses, which will allow customers to be confident in the delivery and quality of goods received.
4. What are the delivery points?
The futures contract is delivered basis Rouen, free onto buyer’s transport (barge, truck). Any port of Rouen CME approved warehouse facility deliveries will be at par, while deliveries at all other CME Group approved warehouse facilities will be basis a fixed cost of transport differential to the port of Rouen. Delivery of wheat against a futures position will be at approved warehouse facilities located within the major wheat production regions in the north of France. Each facility will be approved by CME Group for delivery and load-out of EU wheat onto lorry or barge.
5. How are EU Wheat futures contracts quoted?
CBOT EU Wheat futures are Euro-denominated, and quotes in Euros per metric tonne. The contract size is 50 metric tonnes and the minimum tick size is 25 euro cents.
6. Will options be listed alongside futures?
Yes, options on CBOT EU Wheat futures will be listed from day one.
7. Since EU Wheat futures and options are Euro-denominated contracts, will the margins also be quoted in Euros?
Yes, the initial and variation margins for CBOT EU Wheat futures will be quoted in euros. However, clearing members may post margin in a number of other currencies, including GBP and USD as well as in Euro.
8. Will there be margin offsets?
There will be margins offsets between the EU Wheat and the CBOT SRW and HRW Wheat. Margin offset details will be available two weeks prior to launch.
9. Which contract months will be listed?
EU Wheat futures and options will be listed for trading in September, December, March and May. At launch, trading will begin with the December, 2016 delivery month, and 8 contract months will be available.
10. Are EU Wheat futures eligible for block trading?
Block trading will be available for CBOT EU Wheat futures, with a minimum threshold of 50 contracts.
11. In what venues will CBOT EU Wheat futures and options be traded?
EU Wheat futures and options will be listed on CME Group’s electronic trading platform, CME Globex. EU Wheat options will additionally be listed on the CBOT trading floor
12. How can I get access to CME Globex?
To access CME Globex or the CBOT trading floor you must have a relationship with a CME Clearing Member Firm. For more information on getting connected to CME Globex, visit cmegroup.com/globex
13. What are the trading hours?
EU Wheat futures and options will be listed for trading on CME Globex during the Paris business day from 10:30 a.m. to 6:35 p.m. Paris time. EU Wheat options will additionally be listed on the trading floor during the Paris business day from 3.30 p.m. to 6:35 p.m. Paris time.
14. Who do you expect to participate in this market?
The design of the EU Wheat contract is tailored to meet the needs of all commercial participants in the European wheat market. It should be appealing to farmers, cooperatives, merchants, international traders, importers, exporters and processors. In addition, as an instrument that closely tracks the cash market, the CBOT Wheat contract will be attractive to institutional investors who seek trading opportunities in this market, including spreading with the CBOT SRW and HRW Wheat contracts.
15. How will liquidity in EU Wheat futures and options be developed?
Due to the wide-ranging demand and market interest in the European wheat marketplace, the Exchange expects early participation in EU Wheat futures from both commercial buyers and sellers. In addition, there will be market makers in place to support liquidity in the futures and options contract, providing two-sided markets and competitive bid-ask spreads.
Matters discussed herein are pending and subject to regulatory and additional internal review.
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Futures trading is not suitable for all investors and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade.
All examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT and NYMEX rules. Current rules should be consulted in all cases.
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