CME Group Inc is considering switching to a cash settlement process for its live cattle futures, a managing director said on Thursday, as traders continued to complain about extreme volatility. Dave Lehman, managing director of commodity research and product development, said discussions about the new settlement procedure were part of an all-encompassing review of the market by CME, driven by concerns about price swings.
The CME change, if implemented, would be a major attempt to restore confidence in the market by adjusting the way it operates. "It's on the table," Lehman said at the Reuters Commodities Summit. He added that CME was also looking at potential modifications to the physical delivery process, without providing details.
Private and government officials have been scrutinising trading in futures and the cash cattle market since the start of the year, following a sharp setback in prices in the second half of 2015. Futures are either cash settled or deliverable. Under the delivery procedure, a producer using the market as a hedge can buy back the contract or take delivery. Few contracts are actually delivered.
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