As cotton surged, China trader amassed $510 million bet
A landmark U.S. fine for excessive speculation in the benchmark cotton futures market has revealed a startling new dimension to last year's blistering winter price rally: the biggest bull was a Chinese trader with a $510 million punt.
A little-known Shanghai firm called Sheenson Investments Ltd and its founder Weidong Ge, a former trader at China's vast state-owned agriculture trading company COFCO, have agreed to return $1 million in ill-gotten gains and pay a $500,000 civil penalty for exceeding federal limits on speculative bets in soybean oil and cotton futures, the Commodity Futures Trading Commission said on Tuesday.
It is the agency's biggest-ever "disgorgement" agreement associated with position limits and among the biggest civil fines, according to a review of a dozen such enforcement measures since 1995. It is the first against a Chinese firm.
The action is the latest sign that the CFTC is cracking down on excessive speculation harder than ever following years of political uproar over soaring grain and energy prices. Even tougher limits on commodity markets come into force next month amid the first big wave of Dodd-Frank financial reforms imposed following the 2008 financial crisis.
"If there was any question that we would vigorously enforce the new limits that go into effect in less than three weeks, I think these settlements speak for themselves," CFTC commissioner Bart Chilton said in an emailed statement.
But it is even more remarkable for the light it sheds on one of the most explosive periods in the volatile cotton contract's history, with prices on the IntercontinentalExchange surging by more than a third in two months to reach a post-Civil War high of $2.27 by early March - just a few weeks after the CFTC told Ge's firms to reduce its position.
"This may be an 'aha' moment," said one 30-year veteran of the cotton market. "We knew there was something. So that's what it was. That's a huge position, particularly for someone who was then forced out of the market."
Shanghai-based Ge, who the CFTC said had 13 years of experience trading commodities, currencies and shares, could not be reached for comment on Tuesday. Shanghai Chaos Investment, one of his funds named by the CFTC, declined to comment.
Shanghai Chaos Investment describes itself as a trend-following fund on its website, but provides no details on assets under management. It says returns have averaged around 120 percent since Ge founded it in 2005, while industry participants estimated it manages billions of yuan (hundreds of millions of dollars). (http://www.chaoschina.com/)