CME Group Inc expects its new Trading at Settlement order processing for agricultural markets will efficiently replace the traditional Market on Close orders that allowed late-landing grain and livestock futures trades to be filled for decades, an exchange official said on Wednesday. "I think the reason is certainty," Tim Andriesen, managing director of CME agricultural products, told the Reuters Global Ags Forum. "You might be buying 1 tick above, but you would know the levels you are buying and not have to worry about where you get filled."
In the energy markets, where CME has been using TAS for several years, 97 percent of such trades are flat to +1 ticks of the settlement price, Andriesen said. The TAS system of electronic trade matching begins June 15 for agricultural markets in an aim to transition side-by-side with century-old open outcry futures trading pits that the exchange will close on July 2.
Because MOC orders will no longer be available after July 2, the grain and livestock trade is nervous. Arm-waving pit brokers have traditionally bought and sold MOC orders in the tumultuous last minutes of trading each day, assuring that grain merchants, farmers, processors and other customers get their positions, often hedges to protect their cash market holdings, on the books to settle accounts. "You can place TAS orders all the way until 1:15 pm," Andriesen said. "With TAS, you could place your pre-hedges and know you have them executed before the settlement."
Andriesen said TAS would allow customers to enter buy or sell orders during the trading day equal to the yet-to-be determined settlement price, or at a price up to 4 ticks above or below that price. TAS will be available on the first three listed futures, the new-crop contracts if they are not one of the first three, the first 2 nearby spreads and the nearby old-crop/new-crop spread, Andriesen said.
In response to concerns about liquidity - the ability of one market sector to control the system - Andriesen said the exchange was confident the transition would be smooth. "TAS is a new product for the ag industry so it will take time for liquidity to grow, like any new product," Andriesen said." In CME's energy market, he added, "what we have seen is there is a large number of participants trading TAS - it's much more than one big participant."