Large Trader Net Position Changes
Explanatory Notes
The Large Trader Net Position Changes data, published by the Commodity Futures Trading Commission (CFTC or Commission) on June 30, 2011, builds on the CFTC’s efforts to improve market transparency. The data identifies, for a given week, the daily-average aggregate large trader net position changes for 35 futures markets. The report also provides amounts for net position changes using the same large-trader classifications as the Commission’s “Disaggregated Commitments of Traders” reports.
The new market-specific data augments the volume and open interest data that exchanges routinely provide. The weekly data supplied in this one-time report covers futures markets for 27 physical commodity and 8 financial products from January 2009 to May 2011. This data release should provide the public, academia and traders with further insight into market liquidity.
Methodology
The Large Trader Net Position Changes data depicts trading that changes or creates an end-of-day position, as contrasted with trading that does not change a trader’s end-of-day net position. Daily net position changes in all futures months combined were calculated using data collected from the Commission’s Large-Trader Reporting System (LTRS).1 As a first step, staff calculated, for each reportable trader, the daily all-futures-combined net position change (excluding options). For example, if a trader was net long 500 futures on day one and net long 700 futures on day two, the daily net long futures position change was 200. Although there are exceptions as explained below, a trader’s increase in a net long position or decrease in a net short position can be viewed as net “buys.” Similarly, a trader’s decrease in a net long position or increase in a net short position can be viewed as net “sells.” Staff then calculated a daily average by aggregating net “buys” across all traders that increased their net long position (or reduced their net short position) and separately aggregating the net “sells” for all traders that increased their net short position (or reduced their net long position). Staff then calculated, for each reporting week, the simple average of that week’s daily aggregate net “buys” and net “sells” for each of the four large-trader classifications used in the Commission’s “Disaggregated Commitments of Traders” reports.2
The column of the report entitled “Daily Average Large Trader Net Position Change” is calculated by summing the daily average “buys” and the “sells” for each of the four categories and dividing by two.3 Finally, the report also shows the “Daily Average Trade Volume,” which is the daily average of the total futures-only trading that week. The latter figure may differ from what the exchange originally published for the same dates due to various trade anomalies.
Offsetting Position Changes
Net position changes for a trader are calculated using position data from all contract months for a given futures market. As a result, the execution of offsetting position changes on a given day nets to zero and will not show up as net buys or net sells. The following types of position changes have no impact on a trader’s net all-futures-combined position and are not considered a directional net position change for the purpose of this report: rolling a long or short position from one futures month to another, establishing a calendar month spread position, offsetting a calendar month spread position or rolling a calendar month spread.
Data Issues and Limitations
The LTRS allows staff to aggregate reportable positions across several accounts to the trader level. Traders may have executed trades in multiple trading accounts on the same day. For example a trader may buy 1000 contracts in account one and sell 1000 contracts in account two. Account aggregation allows staff to calculate the net change in a trader’s futures position on any given day across all accounts under a trader’s control.
The LTRS captures data on traders that are at or above the reporting threshold specified in Part 15 of the Commission’s regulations. Although the LTRS typically captures at least 80 percent of the open interest for a futures market, changes in net position associated with nonreportable traders could not be accounted for in the data. Moreover, to calculate aggregate net position changes, staff assigned each trader a position value of zero for each day the trader was below the reporting level. For example, if the reportable level for a market is 100 contracts, and a trader becomes reportable with a newly reported position of 125 long contracts in a single contract month, then the position value assigned to the trader for the prior, nonreportable day was zero. Note, however, that even though staff calculates a net position change of 125 long contracts in this instance, the trader’s previous nonreportable position may have been anything from 99 long futures contracts to 99 short futures contracts. As a result, the true net position change for that trader as a result of “buys” could be anywhere from 26 to 224 contracts.4 The cumulative effect of excluding nonreportable traders and assigning a zero to nonreportable positions may cause the estimates of the aggregate net position changes to either be too high or too low for any given day. These limitations cause the net “buys” and “sells” to not equal each other on any given day in a futures market, although they are very close, on average, over the period of study from January 2009 to May 2011.
Position changes due to options exercise, delivery notices or the exchange of futures for related positions (EFRPs) are included in the data.5 Changes in position are significantly affected by a futures final expiration day, particularly in cash-settled contracts, when all open long and open short futures positions go to zero. As a result, the weekly data typically show a spike in position changes during the expiration week associated with the last trading day of a futures contract.
1 Clearing members, futures commission merchants and foreign brokers (collectively called reporting firms) file daily reports with the Commission. Those reports show the futures and option positions of traders that hold positions above specific reporting levels set by CFTC regulations. If, at the daily market close, a reporting firm has a trader with a position at or above the Commission’s reporting level in any single futures month or option expiration, it reports that trader’s entire position in all futures and options expiration months in that commodity. Special accounts that are not yet fully identified and classified at the time of this report are excluded from the analysis.
2 Using the same trader classifications as for the Commission’s “Commitments of Traders” reports, the daily-average net position changes due to “buying” and “selling” are identified for four categories of traders. For physical commodity futures markets, the categories are: Producer/Merchant/Processor/User; Swap Dealer; Managed Money; and Other Reportable. For financial futures markets, the categories are: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Fund; and Other Reportable. For further details on issues related to trader classification, see the explanatory notes for the “Disaggregated Commitments of Traders Report” and for the “Traders in Financial Futures” at Commitments of Traders - CFTC.
3 If the Commission had complete information on all traders’ positions, instead of just large traders, the directional net “buys” would necessarily equal the directional net “sells.” However, the existence of nonreportable traders’ positions leads to differences in the calculation of directional “buy” and “sell” trades that are usually relatively small. As a result, staff uses a simple average of the total directional “buys” and “sells” to compute daily average net position changes.
4 Significantly different results may apply when a trader has nonreportable positions in multiple contract months and moves above the reportable level in at least one contract month. In this situation, a trader’s actual position change could be significantly different than what staff calculates.
5 For example, if a reportable trader takes delivery, and the long futures position is reduced, it will show up as a net position change (a net “sale”) on the day(s) of the delivery notices.