ADM disallowing PB trading

Discussion in 'Commodity Futures' started by JPope, Aug 13, 2010.

  1. JPope


    Read below. Any other brokerages/clearing firms taking it upon themselves to close access to products because other clients were"disappointed with their experience" trading them?


    DATE: August 13, 2010

    TO: All Introducing Brokers

    FROM: Matt King

    SUBJECT: Pork Belly Contracts

    Recently, daily trading volume in the pork belly market has been practically non-existent, and open interest is very low. Clients who have tried to trade pork belly contracts have been disappointed with their experience because of the lack of liquidity in the market.

    Due to the lack of trading volume, liquidity and open interest, ADMIS has decided that it is no longer in our clients best interests to trade pork bellies, and we are suspending the ability to trade this market except for liquidation purposes only.

    We have made this decision only to protect our clients and their best interests. The market conditions have made it very difficult to offset a position, and we do not want the customer to face this situation."
  2. olias


    Yes, I think that's pretty common, and understandable.
  3. It seems sensible to me that if you've got a future with physical delivery, and have a situation where you can get in a position and then have no way to get out, then you can't speculate safely in that market. It's dead to everyone not a member of the pork industry.

    So the broker's decision seems perfectly reasonable.
  4. This would affect only a very small number of people. It may cause a "bandwagon effect" of other firms not allowing their customers to trade the contract bringing about its eventual delisting. :(
  5. 1) I was motivated to see what the volume and open interest are in August and February.
    2) There appears to be a gigantic squeeze happening in the August with open interest of ~10 contracts remaining.
    3) Look at those lock-limit up days on the chart. It's a fitting "end" to the contract. :eek:
  6. JPope


    I agree with what's been said here for the most part. There isn't any reason for any speculator to be trading them, but futures markets weren't designed solely for the purpose of speculators. ADM has many clients in the livestock markets obviously, and it seems like a slippery slope for brokers to just determine that certain products are just "too dangerous" to trade. If this decision flies, and they're explanation is that "customers have had a bad experience trading them", what's to prevent them from disallowing SP daytrading, because of the unpleasant experience that most people also have there (more people lose money than not)? Also, why wouldn't they disallow deep deferred futures contracts trading in almost any market as many are as equally illiquid as the bellies?