Commodities

Google Ad

The Commodity Futures Trading Commission (CFTC) publish the Commitments of Traders (COT) reports with a breakdown of open interest for futures and options on futures markets. More specific, disaggregated reports (DCOT) came after the GFC in 2008.

CFTC Logo

Disaggregated Committment of Traders Reports (DCOT) came about from a recommendation made by a CFTC September 2008 staff study about the influence of swap dealers and index traders on the commodities markets after the Global Financial Crisis (GFC). The study found that the CFTC's traditional COT reports did not give insight into the activities of hedge funds and swap dealers in futures markets.  Specifically in oil, natural gas and cother commodities.

The Traditional COT Report

The Commodity Futures Trading Commission (Commission or CFTC) publishes the Commitments of Traders (COT) reports to help the public understand market dynamics. Specifically, the COT reports provide a breakdown of each Tuesday’s open interest for futures and options on futures markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.

The COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers and exchanges). While the position data is supplied by reporting firms, the actual trader category or classification is based on the predominant business purpose self-reported by traders on the CFTC Form 401 and is subject to review by CFTC staff for reasonableness.

CFTC staff does not know specific reasons for traders’ positions and hence this information does not factor in determining trader classifications. In practice this means, for example, that the position data for a trader classified in the “producer/merchant/processor/user” category for a particular commodity will include all of its positions in that commodity, regardless of whether the position is for hedging or speculation.

Note that traders are able to report business purpose by commodity and, therefore, can have different classifications in the COT reports for different commodities. For one of the reports, Traders in Financial Futures, traders are classified in the same category for all commodities. Due to legal restraints (CEA Section 8 data and confidential business practices), the CFTC does not publish information on how individual traders are classified in the COT reports.

Generally, the data in the COT reports is from Tuesday and released Friday.

The CFTC receives the data from the reporting firms on Wednesday morning and then corrects and verifies the data for release by Friday afternoon.

Types of Reports

There are four main reports:

  • 1. Legacy
  • 2. Supplemental
  • 3. Disaggregated
  • 4. Traders in Financial Futures

Legacy

The Legacy reports are broken down by exchange. These reports have a futures only report and a combined futures and options report. Legacy reports break down the reportable open interest positions into two classifications: non-commercial and commercial traders.

Supplemental

The Supplemental report includes 13 select agricultural commodity contracts for combined futures and options positions. Supplemental reports break down the reportable open interest positions into three trader classifications:

  1. non-commercial,
  2. commercial, and
  3. index traders.

Traders are separated into three categories within two broad classifications.

"Nonreportable" traders are small speculators whose positions under CFTC reporting thresholds.

"Reportable," traders are large traders and are required to report their positions to the CFTC daily. Reportable traders are then split into either "commercial" or "noncommercial" designations.

Commercials, who deal with a commodity in the cash market, include producers, merchants, processors and users of commodities that manage their business risks by hedging with futures. Swap dealers, or investment-banking operations that offer over-the-counter commodity derivatives to their customers, are also included in the commercial category, since they use futures to hedge residual exposures from their derivatives activities.

Non-commercials trade futures speculatively, and include professional money managers such as commodity pools, managed accounts and hedge funds.

The division of commercial traders into two separate categories, gives us a better handle on the investment banking entities, the swap dealers 'bets' on the commodities markets. Remember they are not completely transparent, we just get the bank level not the end user, the customer. Is the swap dealer's counterparty speculative, a hedge or index fund, or a commercial entity dealing with the underlying cash commodity?

Commodities that have hard  speculative positions limits we can make a calculated assumption with + or - beta risk that that the counterparties are noncommercial. A commercial entity has the ability hedge a large cash position under an exemption to speculative position limits, this negates the need for a swap dealer.

The DCOT Report

The Disaggregated reports are broken down by agriculture, petroleum and products, natural gas and products, electricity and metals and other physical contracts.

These reports have a futures only report and a combined futures and options report.

The Disaggregated reports break down the reportable open interest positions into four classifications:

  • 1. Producer/Merchant/Processor/User
  • 2. Swap Dealers
  • 3. Managed Money
  • 4. Other Reportables

CRUDE OIL, LIGHT SWEET - NEW YORK MERCANTILE EXCHANGE Code-067651

Disaggregated Commitments of Traders - Options and Futures Combined, July 03, 2018

WTI CFTC July 3 DCOT

Please see the “Disaggregated Explanatory Notes” for further information.

Whilst the new classification system doesn't give us total transparency it gives us a clear view of what the herd and large players are doing.  Though one has to be aware that there are games still going on with what is being reported, over the counter and geographical offsets and more. 

The Managed Money category includes "fast money" algorithm based and momentum managed accounts run by commodity trading advisers (CTA) and commodity pool operators. The category also covers the longer term buy/sell and hold commodity index portfolios and hedge funds. For this reason it helps to garner an understanding of what triggers many of these positions.

By cross-referencing the CFTC's supplemental Commodity Index Trader (CIT) report you get a further breakdown. The CIT covers only a dozen agricultural commodities. By default, any other reportable positions not assigned to the three categories enumerated above end up in the Other Reportables category. Traders holding these positions will typically be unregistered noncommercial traders.

Traders in Financial Futures

(TFF) report includes financial contracts, such as currencies, US Treasury securities, Eurodollars, stocks, VIX and Bloomberg commodity index.

These reports have a futures only report and a combined futures and options report.

The TFF report breaks down the reportable open interest positions into four classifications:

  • 1. Dealer/Intermediary
  • 2. Asset Manager/Institutional
  • 3. Leveraged Funds
  • 4. Other Reportables

Please see the “Traders in Financial Futures Explanatory Notes” for further information.

Short and Long Format of Reports

The Legacy and Disaggregated reports are available in both a short and long format.

The TFF report is only available in the long format.

The Supplemental report is only available in the short format.

The short format shows reportable open interest and week-to-week open interest changes separately by reportable and non-reportable positions. For reportable positions, additional data is provided for commercial and non-commercial holdings, spreading (in certain categories only), changes from the previous report, percent of open interest by category, and numbers of traders.

The long report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders.

Source: CFTC

From The TradersCommunity Research Desk

Log in to comment
Discuss this article in the forums (2 replies).