NEW YORK, Feb 3 (Reuters) - ICE Futures U.S. may require investors with large positions in cotton to file an exemption with the exchange explaining how they plan to hedge those positions.
Traders said the proposed rule would apply only to the March spot month contract during its delivery, and that the back months would not be affected.
Open interest in the March contract stood at 85,629 lots as of Feb. 1. Total cotton open interest as of that date amounted to 211,690 contracts. The proposed rule would affect about 30,000 or 15 percent of them.
'Cotton market participants who expect to carry positions in excess of the spot month position limit, 300 contracts, into the notice period would be required to file an exemption...with the Market Surveillance Department,' the exchange said in an advisory about its proposed rule.
'Any exemptions granted would be for a specified contract month only and should not be viewed as relief from the responsibilities all traders have to transact their business in a manner consistent with an orderly market,' ICE said.
Mike Stevens, an independent cotton analyst in Louisiana, said the exchange wants 'to discourage (just) anybody getting involved in the delivery process' by making investors prove they have a legitimate position in the spot month which has a counterpart in the cash market.
Another trader said that, on face value, the rule would not slap limits on investors. 'If anything, it allows investors to exceed the limits on the spot contract going into delivery,' the dealer said.
ICE said those applying for an exemption need to show 'a specific long or short position sufficient to cover the applicant's bona fide hedging requirements for the contract month's delivery month and the next succeeding calendar month.'
Analysts said the problem would be that any change would need to be approved quickly. That's because the letter for an exemption to the position limit would need to be sent to the exchange by Feb. 14, five business days before the March contract goes into delivery on Feb. 22.
The advisory did not say when ICE would decide, although traders said its cotton committee may meet this week.
