What lies beneath all trends? Published by 2 N D E D I T I O N FOR FUTURES, OPTIONS and FOREX TRADERS Learn to Analyze the New COT Reports like a Pro TRENDS TRENDS BY GARY KAMEN MARKET MARKET Now including both the Disaggregated COT Report and Traders in Financial Futures
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FOR FUTURES, OPTIONS and FOREX TRADERS … Lies Beneath All... · The New COT Report 1 What lies beneath all trends? Published by 2ND EDITION FOR FUTURES, OPTIONS and FOREX TRADERS
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1The New COT Report
What lies beneathall trends?
Published by
2 N D E D I T I O N
FOR FUTURES, OPTIONS and FOREX TRADERS
Learn to Analyze the NewCOT Reports like a Pro
TRENDSTRENDS
BY GARY KAMEN
MARKETMARKET
Now including both the Disaggregated COT Report andTraders in FinancialFutures
The information herein is compiled from public sources believed to be reliable but is not guaranteed as to its accuracy or completeness. No responsibility is assumed for the use
of this material and no express or implied warranties are made. Nothing contained herein shall be construed as an offer to buy/sell, or as a solicitation to buy/sell, any security,
Whether a particular trader group is net long or short is not important to the analysis; net positions relative to historical levels are. Therefore, a simple net position is meaningless; it is imperative to
compare the current net position with the recent historical levels in the respective market. The
relative bullishness/bearishness of the Commercial net position is easier to see when you can view
the current net position with both the highest and lowest net commercial position over a selected
period of time.
Go to ‘Resources’ > ‘Commercial Tracker’ at www.TrendsinFutures.com for the quickest view
covering all of the markets for the past 52-weeks.
THE FIRST “NEW” REPORTThe Commodity Futures Trading Commission (Commission) began publishing a Disaggregated
Commitments of Traders (Disaggregated COT) Report on September 4, 2009. The first iteration of
the Report covered 22 major physical commodity markets; on December 4, 2009, the remaining
physical commodity markets were included.
The Disaggregated COT Report increases transparency from the legacy COT Reports by separating
traders into the following four categories: Producer/Merchant/Processor/User; Swap Dealers;
Managed Money; and Other Reportables. The legacy COT Report only separates reportable traders
into “Commercial” and “Non-Commercial” categories.
Commercial Net Positions Legacy Report
9The New COT Report
All COT Reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or
more traders hold positions equal to or above the reporting levels established by the CFTC. The
Reports are published in futures-only formats as well as futures-and-options combined formats.
The data are available in both a short format and a long format.2
The Disaggregated COT Report is being published side-by-side with the legacy COT formats. The
Commission is soliciting comment on the new Report and will review whether to continue to publish
both side-by-side, or to replace the legacy Report with the new Report.
This initiative for providing market transparency arises from the recommendation to disaggregate
the existing “Commercial” category in the Commission’s September 2008 Staff Report on Commodi-
ty Swap Dealers & Index Traders. Specifically, that Report recommended:
Remove Swap Dealer from Commercial Category and Create New Swap Dealer Classification for Reporting Purposes: In order to provide for increased transparency of the exchange traded futures
and options markets, the Commission has instructed the staff to develop a proposal to enhance and
improve the CFTC‘s weekly Commitments of Traders Report by including more delineated trader
classification categories beyond Commercial and Non-Commercial, which may include, at a mini-
mum, the addition of a separate category identifying the trading of swap dealers.
The new categories are as follows:
1. Producer/Merchant/Processor/UserAn entity that predominantly engages in the production, processing, packing or handling of a physical
commodity, and uses the futures markets to manage or hedge risks associated with those activities.
2. Swap DealerAn entity that deals primarily in swaps for a commodity and uses the futures markets to manage or
hedge the risk associated with those swaps transactions. The swap dealer’s counterparties may be
speculative traders, like hedge funds, or traditional commercial clients that are managing risk arising
from their dealings in the physical commodity. (See next chapter on Swap Dealers)
3. Money ManagerA registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an
unregistered fund identified by CFTC.7 These traders are engaged in managing and conducting
organized futures trading on behalf of clients.
Disaggregated Report Correlation to the Legacy Report Producers + Swap Dealers = Commercials Managed Money + Other Reportables = Non-Commercial
4. Other Reportables Every other Reportable trader that is not placed into one of the other three categories is placed into
the “Other Reportables” category.
THE SECOND “NEW” REPORT
The Traders in Financial Futures (TFF) Report, announced by the Commodity Futures Trading
Commission (CFTC) on July 22, 2010, builds on improvements to transparency implemented in 2009
that disaggregated data in the CFTC’s weekly Commitments of Traders (COT) Reports.
The new Report separates large traders in the financial markets into the following four categories:
Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds; and Other Reportables.
The legacy COT Report separates Reportable traders only into Commercial and Non-Commercial categories.
The TFF Report, like the COT Reports, provides a breakdown of each Tuesday’s open interest
for markets in which 20 or more traders hold positions equal to or above the reporting levels
established by the CFTC. This Report is published in futures-only and futures-and-options combined
formats. The TFF Report is published side-by-side with the legacy COT.
11The New COT Report
The TFF Report
The Commission, by regulation, collects confidential daily large-trader data as part of its market
surveillance program. That data, which also support the legacy COT Report, is separated into the
following categories for the TFF Report:
1. Dealer/Intermediary 2. Asset Manager/Institutional 3. Leveraged Funds and 4. Other Reportables
TRADER CLASSIFICATIONS
The TFF Report divides the financial futures market participants into the “sell side” and “buy side.”
This traditional functional division of financial market participants focuses on their respective roles
in the broader marketplace, not whether they are buyers or sellers of futures/option contracts.
For example, the category called Dealer/Intermediary represents sell-side participants. Typically,
these are dealers and intermediaries that earn commissions by selling financial products, capture
bid/offer spreads or otherwise accommodating clients.
The remaining three categories (Asset Manager/Institutional, Leveraged Funds, and Other Report-ables) represent the buy-side participants. These are essentially clients of the sell-side participants
who use the markets to invest, hedge, manage risk, speculate or change the term structure or
duration of their assets.
CFTC staff use Form 40 data and, where appropriate, conversations with traders and other data
available to the Commission regarding a trader’s market activities, to make a judgment on each
trader’s appropriate classification.
Some multi-service or multi-functional organizations have centralized their futures trading. In such
cases, their Form 40 may show occupations and market usages related to more than one of the
new categories. CFTC Division of Market Oversight (DMO) staff place each reportable trader in the
most appropriate category based on their predominant activity.
Some parent organizations set up separate reportable trading entities to handle their different
businesses or locations. In such cases, each of these entities files a separate Form 40 and is
analyzed separately to determine that entity’s proper TFF classification.
A trader’s classifications may change over time for a number of reasons. A trader may change the
way it uses the markets, may trade additional or fewer commodities, or may find that its client base
evolves. These changes may cause DMO staff to change a trader’s classifications and categories
WARNING: FUTURES AND OPTIONS trading involves high risks and YOU can LOSE a lot of money. Examples of historic price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or are likely to occur. Seasonal increases (or decreases) in the demand for commodities do not necessarily result in an increase (or decrease) in the value of the option or futures contract on those commodities because the market has already factored the seasonal demand into the price of the futures or option. This brief statement cannot disclose all the risks and other significant aspects of the commodity markets. You should carefully study commodity trading and consider whether such trading is suitable for you in light of your circumstances and financial resources before you trade.
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