REFILE-UPDATE 4-CME delays extended grain trade in regulatory snafu

Thu May 3, 2012 5:32pm EDT

* CME to start 22-hour grains trading on May 21

* Exchange delays start 2 days after announcing longer hours

* US regulators had not been notified of change

* KCBT, MGEX also plan to expand trading hours

By Alexandra Alper and Tom Polansek

CHICAGO/WASHINGTON, May 3 (Reuters) - CME Group said on Thursday it will expand grain trading hours one week later than expected, a move that gives rival IntercontinentalExchange Inc a head start in implementing nearly around-the-clock trading.

CME pushed back the start of longer trading for its Chicago Board of Trade contracts until May 21 after the Commodity Futures Trading Commission said it had not received a required 10-day notification for the change.

It was a snafu for the massive exchange operator, which announced its original plans for longer hours on Tuesday as it attempted to fend off a challenge from upstart ICE.

Atlanta-based ICE said last month it would challenge CME's iron grip on grains markets by listing look-alike wheat, corn and soy contracts on May 14 -- on a 22-hour basis.

"It seemed like they were kind of rushing to get that announcement out there," Stifel Nicolaus analyst Matt Heinz said about CME.

Under the new hours, electronic trading for CBOT grains contracts is set to run continuously from 6 p.m. to 4 p.m. Central time the next day, Monday to Friday. The change applies to corn, soybean, wheat, soybean meal, soybean oil, oats, rough rice and ethanol contracts.

Most other major commodity exchanges, including the CME's New York Mercantile Exchange (NYMEX), have already shifted to near 24-hour trading cycles as China's rise has spurred demand from Asia, while hedge funds and high-frequency traders have clamored for greater access.

"It seems like everybody else in the world trades nearly 24 hours," Citigroup analyst Terry Reilly said.

EXTRA TIME

Denizens of the CBOT trading floor -- which will continue to trade during the same open outcry hours of 9:30 a.m. to 1:15 p.m. Central Time (CDT/1430-1615 GMT) -- had resisted the move toward around-the-clock trading.

They said it will give a leg-up to large, speculative traders off the floor who have deep pockets and advanced computer systems to rapidly place orders.

The delay in implementing the longer hours "gives us an extra week of preparation," said Reilly, who supports the change.

Yet, other traders felt little comfort from the extra week.

They remained worried that large traders will gain an unfair advantage from markets being open for the first time when the U.S. Department of Agriculture issues key crop data.

"I think it's a bad mistake," said Jim Gerlach, president of Indiana-based A/C Trading, about the extended hours.

OTHER EXCHANGES JOIN

Until now, CME had abided by the long-standing desire among many industry veterans to keep the market shut during the early morning hours, giving traders time to consider often complex USDA reports.

U.S. agriculture officials are studying whether they should change the timing of crop reports in response to the impending 22-hour trading days, said Hubert Hamer, chairman of USDA's Agricultural Statistics Board.

The drive toward longer hours is seen to be aimed at the market's newer entrants, such as hedge funds, who are anxious for more trading opportunities.

The Kansas City Board of Trade and Minneapolis Grain Exchange, which trade U.S. wheat futures, said they would join CME in expanding their trading hours to 22 hours a day on May 21. The exchanges use the same electronic platform as CBOT grain contracts.

ICE Futures Canada also is meeting with traders and brokers to assess whether to change the exchange's trading hours, President and Chief Operating Officer Brad Vannan said on Thursday.