The Chicago Mercantile Exchange (CME) notified the Commodity Futures Trading Commission this week that the CME Group Global Command Center took emergency action regarding price limits of the March 2020 contract month of the feeder cattle futures contract, effective immediately.
CME Rule 10202.D (Daily Price Limits) of the contract applies initial ($4.50/cwt.) and expanded ($6.75/cwt.) daily price limits above or below the previous day’s settlement price for each futures contract month. CME Rule 10203 (Settlement Procedures) of the contract describes how the CME Feeder Cattle Index is calculated and explains that the index is used to determine the final settlement value for feeder cattle futures and options.
“Reporting and/or live auctions, direct trade and video sales have been adversely affected by the COVID-19 virus causing unexpected volatility in the CME Feeder Cattle Index,” the firm said. “CME took emergency action to increase daily price limits in the March 2020 contract month of the contract to $10.00/cwt. to ensure that trading is not constrained.”
In addition, CME said the action will ensure that convergence between the CME Feeder Cattle Index and the March 2020 feeder cattle futures contract is not impeded.
“The aforementioned emergency action to increase daily price limits of the March 2020 contract month of the contract was taken as a direct result of the COVID-19 virus’s effect on live auctions, direct trade and video sales of feeder cattle. It is intended to ensure that futures trading activity in not constrained during the final three trading days of the expiring March 2020 contract (March 24, 25 and 26).”