CME Amends Grain-Trading Plan After Industry Complained

CME Group Trims Grain-Trading Plan
Traders work in the S&P 500 pit of the CME Group's Chicago Board of Trade in Chicago. Photographer: Tim Boyle/Bloomberg

CME Group Inc., the world’s largest futures exchange, amended a proposal for expanded trading in grains to 21 hours a day after withdrawing an earlier plan for 22 hours that drew complaints from clients.

Trading on CME Group’s Chicago Board of Trade will be from 5 p.m. to 2 p.m. Sunday through Friday, the company said today in a statement. The CBOT currently allows trading 17 hours a day. No date was set for the transition, which will occur “as soon as possible” and no later than June 4, said Chris Grams, a spokesman for the Chicago-based company.

CME originally planned to expand access to markets including corn, soybeans and wheat on May 14 to thwart new competition from IntercontinentalExchange Inc., the energy and agriculture market known as ICE, which began offering grain contracts for the first time this week. CME delayed its changes until May 20, after traders including R.J. O’Brien & Associates objected. Yesterday, CME withdrew its 22-hour plan in a filing with the U.S. Commodity Futures Trading Commission.

“I don’t think they’re confused, I just don’t think CME wants to do it, but ICE is forcing their hand,” said Dan Kuechenmeister, the manager of the commodities department at RBC Wealth Management in Minneapolis. “They were getting a lot of push-back from the clearing firms.”

Commodity Trading

ICE already allows grain trading 22 hours a day with new contracts it offered starting May 14, and trading has expanded in commodity markets, including energy.

Crude oil trades from 6 p.m. to 5:15 p.m. Sunday through Friday on the CME’s New York Mercantile Exchange, and currencies trade 24 hours a day, seven days a week. Treasury futures on the Chicago Board of Trade are exchanged 23 hours a day.

“We’ve had reports during trading hours in the financials and energies for a while, so maybe it’s time to grow up and be like the rest of them,” said Tom Leffler, owner of Leffler Commodities LLC in Augusta, Kansas. “I will admit trying to digest a report that’s going to swing a market can be frustrating, but the market can have the same knee-jerk reaction two minutes after the numbers come out that they have two hours after the numbers come out.”

The National Grain & Feed Association and the North American Export Grain Association, the two largest U.S. grain-handling organizations, objected to CME’s shift to a 22-hour trading day because markets would be open during the release of U.S. Department of Agriculture reports, which currently are published when CBOT trading is closed. The groups said expanded hours will increase volatility and reduce their ability to make informed decisions.

Deal Reached

The revised plan for a four-hour increase in trading hours rather than five was completed after discussions between exchange officials and the grain groups, CME’s Grams said by telephone today. Discussions between the groups and CME started last week and ran through yesterday, said Todd Kemp, NGFA’s treasurer. Closing CME’s Globex electronic trading system from 2 p.m. to 5 p.m. will allow companies enough time to complete back-office work, Kemp said.

“If electronic trading stayed open until 4 p.m., that wouldn’t leave our member companies sufficient time to close their books,” Kemp said. “There were concerns by companies about bringing in additional personnel and overtime and employee quality of life, so moving to the 2 p.m. close addresses those concerns.”

The NGFA would “prefer” that trading be closed when the USDA reports are released, Kemp said. The group will work with the CME and ICE to find a resolution, he said.

More Competition

CME, led by Chairman Terrence Duffy and Chief Executive Officer Phupinder S. Gill, initially sought expanded trading in corn, soybeans, wheat, soybean meal, soybean oil, oats and rough rice after Atlanta-based ICE announced plans on April 12 to compete directly with the Chicago grain markets. The CBOT’s corn, soybean and wheat trading jumped more than 13 percent last year, and holdings in the five biggest contracts were valued at $131 billion in March, exchange data show.

The new ICE contracts have yet to dent CBOT’s market share. Electronic trading in ICE’s corn futures for July delivery was 769 contracts yesterday, compared with CBOT’s July futures with 156,078 contracts, exchange data compiled by Bloomberg showed.

Approval Request

CME Group sought regulatory approval for expanded trading hours through two different filings. In one, CFTC commissioners in Washington would be able to vote on the request any time, while the other process involves a “self-certification” by the exchange that must be submitted at least 10 working days prior to implementation.

“I am pleased the CME was able to work with the grain industry to address their concerns and am hopeful the commission can approve the rule changes expeditiously in order to allow trading to being on Monday,” Jill Sommers, one of the CFTC’s five commissioners, said in a statement.

Bart Chilton, another commissioner, said in an e-mail that the CME’s change “is part of a larger question that deserves more air time” for regulators and the public. “The tectonic-plate shifts in our industry, in terms of the types and volumes of players, deserve careful scrutiny to ensure that the markets remain true to their intended purposes: price discovery and risk management,” he said.

Kansas City

In a separate filing yesterday with the CFTC, the Kansas City Board of Trade withdrew its request for extended hours of 22 hours a day that match those on the CME. The Kansas City exchange resubmitted the plan as a 21-hour trading day with an effective date of May 31.

Wheat futures and options will be traded from 5 p.m. to 2 p.m. Sunday through Friday after implementation, Joseph Ott, the vice president for compliance at the Kansas City Board of Trade, said in the filing. That’s a change from the exchange’s May 2 filing, which specified trading from 5 p.m. to 4 p.m. Sunday to Monday and 6 p.m. to 4 p.m. Monday through Friday.

The resubmission was made so the exchange’s hours would be uniform with the CME hours, Ott said in the filing. An e-mail to Ott and a call to marketing director Shelia Summers weren’t returned.

Remain Consistent

“CME is planning to extend Globex trading hours for its grain contracts,” the Kansas City exchange said in its filing. The amended plan was filed “in order for KCBT wheat futures and options electronic trading hours to remain consistent with CME grains contracts.”

National Grain & Feed Association members had “mixed views” on the expanded trading hours, Kemp said. Some market participants will be able to use the longer hours to hedge their trades in cash markets, while others are dismayed at the prospect of the additional market monitoring, he said.

“Whether you believe these expanded hours are a good idea or not, well that’s what’s coming,” Kemp said. “We took the belief that our task was to structure those expanded hours in a way that best helped our industry respond to that transition.”

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