Close the Options Trading Pits!

By Dean

the options contracts that are traded on the commodity option futures exchange are not real, they simply reflect the speculative frenzy of a group of institutional investors interested in generating "liquidity" for themselves, instead of generating revenue by granting credit for productive work. 

These are not investments that sow and reap crops, they are simply bets on a roulette where big sharks feed off of numerous little fish in a confidence game  that has nefarious results for the People, who pay the real price of their largesse.

This speculative game has resulted in a commodities market bubble in vital commodities and energy that has exasperated the global food crisis and lead to further decline of the US dollar against the Euro.  We must find ways to end this speculation before it consumes the world economy and throws us all into a chaotic flux for the sake of ever more "liquidity" for the rich and privileged few.  There are several ways to solve this problem:

Auction Trading

The futures options market must be regulated to bring it back to it's original moral intent, that of providing a future price point for commodities so that the growers could better plan their future resource allocation.  The futures market must be made "real" by mandating that all options contracts are actually consummated at the strike price upon expiration.  This would involve closing the options trading floors (the pits) and moving to a direct on-line auction, much like e-bay, where auction contracts are binding at completion.

No Producer Trading

Commodity producers must not be allowed to bid on contracts that they themselves would benefit from.  Although this practice is now known to be a conflict of interest at the Comex, it is a loop hole allowed to continue unabated.  By making all contracts binding, producers would  be prevented from bidding up the price of the commodity without taking delivery at expiration date.  All market participants must be bona fide commodity buyers, not sellers, and must pass strict background checks.  Any "liquidity" obtained from the sale must be paid to the original producer, who must never be involved, directly or by proxy, in the bidding chain of the contract.

Unpublished Nexus

The current bid price for vital commodities should never be made public. A published commodity price becomes a nexus that is downloaded into hundreds of systems worldwide and used to price transactions to the public that reflect speculative conditions at the options exchange, not the local supply and demand.  Market participants should determine the price of the commodities according to their own best estimates, using their own local inventory data, not relying of the exchange nexus to valuate their contracts.  

Market Transparency

Market speculation is often the result of rumors and other "news" items claiming that production will  be affected by wars, weather and pestilence. All crop information must be obtained from government regulated statistical systems, known to be reliable and unbiased.  Claims of shortages and calamities must be able to be verified on-line against an actual commodity inventory data base.  Insider innuendo or rumors of events portending dramatic shortfalls should be penalized. 


Speculation in food as a commodity has become a haven for financial investors fleeing from paper assets tainted by subprime mortgages and other toxic credit products. The influx of buyers drives prices and makes food unaffordable for the world’s poor. “Fund money flowing into agriculture has boosted prices,” Standard Chartered Bank food commodities analyst Abah Ofon told the media. “It’s fashionable. This is the year of agricultural commodities.” It has been sharply accelerated by the decline in the value of the dollar, soaring oil prices and the promotion of biofuel production in the US and elsewhere. This attempt to generate a new investment “bubble,” based on the fraud that somehow turning corn into ethanol represents a “green” alternative to fossil fuels, has driven up the price not only of corn, but other grains, while diverting a major share of food production into a more profitable venture.

These and other measures at the FOREX currency market can have a dramatic and immediate effect.  We must evolve from an individualist conscience to a social conscience that values life and the wellbeing the planet over profits for the sake of our private bank accounts. May help us take this great leap forward! 


Atlanta, GA
April 14, 2008

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