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CFTC expanding its COT reporting this week

I’ve posted on the subject of the Commitment of Traders report a few times on this blog as being a useful tool (Commitment of Traders: A Weekly Report Worth Viewing). As part of a general move toward more market transparency, the CFTC, which produces the weekly report, has been working on making it more useful. To that end, they are coming out with a more detailed report for the financials starting this week. Here’s the story from Reuters.

 By Nick Olivari and Christopher Doering
NEW YORK/WASHINGTON, July 22 (Reuters) – The U.S. Commodity Futures Trading Commission said on Thursday it will provide more information on positions held by large traders in financial futures markets, part of its push to boost transparency.

The new data, to be released weekly starting on Friday, “will provide the public with a better view into the financial futures marketplace,” said CFTC Chairman Gary Gensler.

The report will cover about 30 markets, a CFTC official said, including interest rates, foreign currency and debt.

Nearly all U.S. financial futures are traded at the CME Group <CME.O>. In the second quarter, CME handled 12.16 million contracts a day, 9.2 million of which were financial futures.

The new data will be a companion to the CFTC’s weekly commitment of traders report, published each Friday, which breaks down open interest by broad commercial and noncommercial categories.
The new report will show open interest by held by four categories of large traders:
– sell-side dealers, including large banks
– buy-side asset managers and institutional investors, including pension funds, endowments, insurance companies, mutual funds
– leveraged funds, including hedge funds and other money managers
– other traders who mainly use market to hedge risk, such as corporate treasuries, central banks, smaller banks and mortgage originators

The CFTC began issuing similar expanded trader reports for commodity and energy futures last September.
CFTC said similar to this report, the new data will 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.

A CFTC official said the agency analyzed almost 4,000 traders across the markets using its “Form 40” and other data to determine which of the four categories a trader belongs to, and will soon upgrade its form to provide better data.

The CFTC said it also will make available four years of historical data dating back to June 13, 2006 in a couple of weeks.

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Using COT data to spot potential big moves

I’ve mentioned the Commitment of Traders data on a few occasions previously in terms of its usefulness for tracking the positions market participants are carrying in the futures market (see Commitment of Traders: A Weekly Report Worth Viewing). The action in the British Pound of late provides a pretty impressive example of how you could have seen ahead of time the prospects for a big reversal were you tracking the COT figures

Take a look at how short the big traders had gotten in BP futures.

BPCOT101909

Notice in particular the Bullish column under Large Speculators. See how as of October 13th that group was 88% short (100%-12%). That’s a massively lopsided market.  When a market is so imbalanced like that it sets up for some real volatility when things start going in the other direction. We’ve seen that this week in GBP/USD.

GBPUSD102209

GBP/USD rallied from about 1.5850 to almost 1.6650 in 7 trading days. That’s nearly 800 pips and a great deal of the action, especial the October 15th rocket ride, was the result of short stops being tripped. Basically, we saw a short squeeze in sterling. Had you been watching how short the big players were getting as per the COT figures you could have at least been alerted to the potential for something like this happening and strategized for it.