So the CBOT is putting limits on position sizes ahead of expiration. See http://news.ft.com/cms/s/268a1dc0-ed85-11d9-9ff5-00000e2511c8.html I assume this action is directed at stopping customers of the exchange getting the CTD issue, rather than members trading for their own accounts. Can anyone elaborate on who was doing this? Hedge funds? Mutual funds? Prop traders?
The reason the position limits were put on was because the potential squeeze during the last expiration. Furthermore, we had one f****ed up expiration, as June traded in a full 8 tick range almost 4000 times in the last 30 seconds. The position limits were put into affect mainly for the large prop trading groups within the banks like JP Morgan's Fixed Income group, who has been known to hold positions of over 100,000 contracts in the 10-year futures. With such easy access to the cash they would be able to squeeze guys out of the June futures by hoarding the CTD, or driving everyone else into the next CTD, which ends up being very costly. Don't really understand your question about CBOT members, do you mean pit traders? I can tell you for a fact (I watch the ten-year pit everyday from open to close) that none of the locals go home with a position on during the last 10 trading days of the contract, and if they do it is spread off against the next month.
Thanks for the explanation mcurto, I was hoping that you would see my post. I suspected that only Wall St. prop desks could pull off such a maneuver.
MCurto: Do you have some color on the 14 tick spike down to 115 '14 in the 30 earlier please. Was that a local or upstairs? ebo
Bunch of spreaders long the NOB spread size most of today (that is long tens versus short the bonds). Fuji/Mizuho has sold about 8,000 of these last few days. That kept the pressure on the bond most of the day, then started to get some local selling in the last hour into some areas loaded with stops. Most of the bigger 30yr locals not in the pit today (and screen also). When we hit those stops it was no return, and locals were short so they didn't want to provide a bid on the way down. Brumfield was in today that was the reason tens still held up well, he was short but needed to cover more size no one willing to hit his size bids on way down. At least that is my take on things.
Adding to the squeeze stuff above, two guys right behind my desk fill for the fixed income guys at SAC and a couple big basis traders out in NYC and their guys are calling the CBOT asking about the 50,000 contract position limit last ten days of expiration. So my answer is mostly the fixed income groups (which include guys trading the basis) and possibly some hedge funds are the ones that rule is targeted toward.
Hey mcurto, any comments on the article? http://www.nytimes.com/2005/08/07/business/yourmoney/07gret.html? Also, I am curious to know if you think more traders will want to use OTC interest rate swaps to avoid the basis problems with treasuries?
Very timely piece! We sold off 5 full handles since June 1st. It refers to the rally of late May early June.