(Bloomberg) — Global commodities traders are moving forward with possible rule changes aimed at protecting sugar buyers on deliveries sold through a major New York exchange.
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Proposed new rules that include higher costs for sellers in the event of loading delays will be voted on by an Intercontinental Exchange Inc. committee at the end of February, according to people with knowledge of the matter.
Among the changes would be a steeper increase in demurrage, the cost for holding back a vessel, said the people, who asked not to be identified as discussions are private. Traders also are proposing that the ICE clarifies to sellers that they cannot act in bad faith.
The issue of whether exchange rules are sufficient to protect buyers gained attention after a dispute last year involving delays in some deliveries of sugar. In that case, Louis Dreyfus Co. and trader Sucres et Denrees SA bought a combined 1.3 million metric tons of sugar in New York, and Wilmar International Ltd. was the main seller.
The exchange currently doesn’t state a time frame for vessels to be loaded as long as the seller pays demurrage.
“There will be evolutions” on the futures contract, Dimitri Varsano, co-global head of sugar trading at Sucden, told an audience at the Dubai Sugar Conference earlier this month. Some changes could be applied as soon as this year, he added.
While a clarification on bad faith is seen as being more easily implemented, the proposed increase in demurrage could take more time as it would potentially affect the value of the contracts. “It’ll be in a couple of years that it would be applied,” Varsano said.
While new rules could benefit buyers who want to receive sugar immediately, some fear that they would also scare sellers away from the exchange. That raises the risk of prices for the expiring contract moving higher due to fewer sellers active in the market near the time of expiration.
ICE declined to comment on the traders’ proposed changes to delivery rules.
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