CME Group said on Tuesday it will reduce the nearly non-stop trading cycle for its US grain and oilseed markets, and supported a trading halt at all exchanges during the release of major agricultural reports. CME, which owns the Chicago Board of Trade, said it had not yet determined exactly what its new trading hours will be.
Just eight months ago, the exchange operator upended the grain industry by increasing electronic hours to 21 hours a day from 17 hours a day to fend off competition from its rival IntercontinentalExchange (ICE). The longer cycle kept futures and options markets for crops like corn, wheat and soyabeans open for the first time during the release of key monthly reports from the US Department of Agriculture, which often cause sharp swings in prices.
Traders formerly had two hours to analyse the reports before trading resumed and some have called on CME to pause trading so they can digest such data. ICE on Tuesday vowed to keep its markets open for crop reports. "CME Group understands the frustration of many of our customers, and we are open to considering a market pause allowing participants to evaluate the data if all exchanges and trading venues would do the same," CME wrote in a letter to traders.
CME launched a survey last week asking customers whether trading hours should be reduced. It decided to trim hours before the survey period ends on Thursday. Traders for months had complained the longer cycle was spreading out volume, reducing liquidity and increasing volatility. They had circulated a petition asking CME to shorten the hours, noting the threat from ICE turned out to be mostly hollow. "I guess we won," said P.J. Quaid, an independent broker in the corn options pit, who had supported a shorter cycle.
Quaid said some of his customers had stopped trading because the longer cycle had increased the risk of maintaining positions in the markets. Quaid was among a group of traders upset by comments CME Chief Executive Phupinder Gill made in an interview with Reuters that downplayed concerns about "live" market releases markets during USDA reports.
Gill had said traders who wanted to pause trading were a small and "very loud" minority who were resistant to change. CME on Tuesday apologised for Gill's comments, saying they did not represent the exchange operator's commitments to "deep and liquid grain markets" or to hearing feedback from all customers.
The decision to reduce trading hours came after CME Executive Chairman Terrence Duffy told Reuters in October that electronic hours would not be cut because CME had to stay competitive with ICE. The Commodity Futures Trading Commission must approve changes in trading hours. Tom Grisafi, president of Indiana Grain Company, welcomed CME's about-face after he initially supported round-the-clock trading.
"I was one of the ones that wanted to flip the switch and let it be 21-, 22-, 23-hour-trade; but then it did not work," he said. "The markets were broken. People packed up and left town." The National Grain & Feed Association, which represents thousands of country grain elevators and agricultural processors, called the move a "positive first step."
The group still wants a trading halt when data is released because high-frequency traders have "raised concerns about volatile futures market moves immediately preceding and following the release of USDA reports." The USDA in September decided to change the time it issues monthly crop reports to 11 am CST (1700 GMT) from 7:30 am CST because CME expanded the trading cycle. The later release, which took effect for the first time just three weeks ago, allows for more liquidity in the markets.
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