WINNIPEG – An independent review team has concluded that the Winnipeg Commodity Exchange treated market participants fairly when it declared a market emergency and closed trade ahead of schedule in last June’s canola contract.
The review was released last week by the Canadian Grain Commission, which hired three experts in commodity trading to look at whether the WCE acted properly during the emergency.
WCE president Fred Siemens said the board is pleased and thinks the report “reflects very accurately what happened here, why it happened and how it happened.
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“We’re not surprised (at the conclusions), but when someone else reviews your actions, you’re always apprehensive until you see the final report,” he added.
The team did not look at whether any market participants broke trading rules to try to manipulate prices. That is the subject of an ongoing WCE investigation. Few details are available about that investigation, including which companies are being investigated, and when it will wrap up.
Emergency warranted
The review team said the board of governors of the WCE was warranted in declaring the emergency on June 6, when it was clear the cash and futures prices of canola were not going to converge by the June 21 delivery date.
The report states the exchange was concerned that serious commercial harm would result. The WCE told traders in the contract to clear their positions.
The team also concluded the exchange was right to stop trading on June 14 because key market participants were not complying with the June 6 liquidation order and there was “an apparent impasse in the trading pit” between the remaining position holders.
The report states the exchange followed the procedures set out in its bylaws and regulations. It also took other steps to “enhance the fairness and integrity” of its decisions:
- The exchange established a “non-conflict board” before June 6, consisting only of members who did not own or control positions in the June futures or option contract. This smaller board looked at the information and made the decisions on the contract.
- The board protected confidential and market-sensitive information.
- The board authorized the exchange’s administration to set the liquidation schedules. The administration did not reveal to the board who the position holders were, or when they were scheduled to liquidate.
The review team was headed by Wendy Gramm, past chair of the United States Commodity Futures Trading Commission.
