Cocoa futures dropped to their lowest levels in more than a week as traders reassessed their positions following regulatory adjustments by Intercontinental Exchange Inc. (ICE).
The most active contract in London fell as much as 4.8% on Wednesday after changes to regulations were made public.
On Tuesday, ICE Futures Europe announced a reduction in the accountability levels for cocoa contracts which dictates the threshold at which traders must disclose additional information about their positions.
The updated policy will take effect on January 13, 2025 and it is expected to enhance market stability going forward.
“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 new accountability thresholds do not require trading houses holding positions above the limits to liquidate them, provided the positions are justified by hedging against physical volumes, Parkman noted.
While the regulatory adjustments are intended to reduce volatility, the market remains uncertain about their long-term impact. ICE’s move comes at a time when supply chain concerns have started to ease, potentially tempering the bullish sentiment that defined cocoa markets in 2024.
As traders adapt to the new rules, the focus will be on liquidity levels and how market participants can manage their positions under stricter reporting requirements.
For now, prices in both London and New York remain under pressure as traders weigh the implications of regulatory changes alongside broader market conditions.
