CME considering changes to grains settlement rules

CHICAGO, Sept 1 (Reuters) - CME Group Inc (CME.O) is considering changing the way its Chicago Board of Trade grain futures prices are settled, potentially giving more influence to electronic trade, floor traders said on Wednesday.

CME Group, the world's largest derivatives exchange and parent of the Chicago Board of Trade, scheduled a series of meetings this week to discuss proposed settlement changes with traders.

"Nothing is definite or solidified. We are listening to a variety of ideas from a broad spectrum of customers and continue to hold discussions with the marketplace," CME Group spokeswoman Mary Haffenberg said.

She said there was no timeline for implementing any changes.

The exchange would not divulge the details of its plans but several veteran grain traders said CME had proposed using a weighted average of trades made on its Globex electronic platform and the exchange's traditional open-outcry pits.

Although the vast majority of all CBOT grain futures volume is traded electronically, settlement prices for corn and soybeans are still established in the pit.

Currently, CBOT wheat and rice futures are the only grain products settled off Globex.

The exchange floated a proposal last November to tie settlements for some deferred corn and soy complex contracts to Globex, but shelved the plan a week later. [ID:nN23254061]

Floor traders expressed concern that giving more influence to the electronic trade could raise the risk of price distortion at the close and also threaten the viability of the traditional trading pits. The Chicago Board of Trade first began trading in open-outcry pits in the mid-19th century.

The number of pit traders has dropped dramatically since CBOT launched side-by-side electronic and open-outcry trading in 2006.

Critics of high-volume trading entities that thrive on electronic markets, including so-called "black box" firms that trade based on algorithms, accuse them of distorting markets.

"They are catering to the ... high-volume, high-frequency traders," one floor trader said. "The Board of Trade is sucking up to them because they pay a lot of fees."

Others noted the open-outcry trade in agricultural options remained brisk.

"As long as the option pits are viable, I don't think they will close the floor," said grain merchandiser Glenn Hollander of Hollander & Feuerhaken, a firm that has been on the trading floor for 66 years.

"If they ever figured out a way to do the options business electronically, they would close the pit in a minute," Hollander said. (Reporting by Julie Ingwersen;editing by Sofina Mirza-Reid)