(Bloomberg) -- Cocoa dropped to the lowest in more than a week as traders reassess their positions after Intercontinental Exchange Inc. took steps to tame market volatility.
The most-active contract fell as much as 4.8% in London. ICE Futures Europe on Tuesday lowered the contract’s so-called accountability levels, the threshold for when traders need to disclose more information about their positions. The new policy takes effect Jan. 13.
“A simple reading of the circular suggests that if you are a non-commercial player, then you’ll probably be required to be within the accountability level by Monday,” said Jonathan Parkman, head of agricultural sales at Marex Group. “I can see the logic behind it but whether it ultimately delivers what the exchange wants, which is lower volatility, then that we’ll have to wait and see.”
The update doesn’t mean that trading houses holding positions above the accountability levels need to liquidate them, as they may be fully justified on the basis of hedging of risk for physical volumes, he added.
Cocoa futures nearly tripled last year, fueled by renewed supply concerns, becoming one of the best-performing commodities. The rally has made it more expensive to maintain positions and prompted traders to pull out of the market, curbing liquidity and leaving cocoa vulnerable to large swings.
Cocoa traded in New York also retreated on Wednesday, with the most-active contract falling as much as 6.3%. Prices hit the lowest since Dec. 30.
--With assistance from Dayanne Sousa.
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