On Friday, March 28, it needs to be remembered that the Kansas City Board of Trade has been given approval by the Commodity Futures Trading Commission (CFTC) to change the daily price limits for hard red winter wheat options and futures.
Since it's the effective business date, it entails the evening session on Thursday, March 27, 2008.
The press release said:
"The initial daily price limit for wheat remains at 60 cents per bushel and will increase by 50 percent the following trading session when the price of two or more futures contract months within the first five listed non-spot contract months, or the final contract month of a crop year, closes at limit bid or limit offer. Price limits can expand two consecutive times: to a 90 cent per bushel limit and then to a maximum $1.35 per bushel limit.
"Daily price limits will step back to their prior levels when no futures contract month closes at limit bid or limit offer that day. If price limits are $1.35 per bushel and no wheat futures contract month closes limit bid or limit offer, daily price limits for all contract months revert back to 90 cents per bushel the next business day. If price limits are 90 cents per bushel and no wheat futures contract month closes limit bid or limit offer, daily price limits for all contract months revert back to 60 cents per bushel the next business day. The CME Group is adopting the same price limits policy for its wheat contracts.
"Following the expanded price limits effective trade date February 11, market users asked for additional changes. Market users wanted to see: price limit provisions that expand based on the activity of the front months where the majority of open interest resides, a maximum amount that price limits can expand to, and provisions that allow price limits to contract at the same rate that they expand. These changes address all three of these concerns.
"Options pricing is subject to the same daily price limits as the underlying futures contract."
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