CME defends turf with expanded grain trading hours
* CME grain trade starts earlier, drops midsession break
* Move seen as response to 22-hour ICE grain trading cycle
* Trade frets about release of USDA data during market hours
By Julie Ingwersen
CHICAGO, May 21 (Reuters) - The CME Group's grain markets began trading for 21 hours a day on Sunday, as the exchange tries to guard its turf against upstart IntercontinentalExchange, whose own nearly round-the-clock trade has gotten off to a tepid start.
For the first time, CME grain markets will be open when price-sensitive reports from the U.S. Department of Agriculture reports are issued, which some analysts said could favor high frequency traders able to crunch the data more quickly.
The USDA, following complaints from top U.S. grain groups, said it was in discussions on whether to revise its schedule. Its monthly crop supply/demand reports are currently released at 7:30 a.m. Chicago time.
Traders and analysts are accustomed to having two hours to digest the reports, which contain a wealth of data on U.S. and world crops for previous and upcoming harvests, before the CME grain markets open. With CME eliminating that break in trade, they say, more volatile moves in the grain markets are likely.
"These reports are so extensive and global -- it's hard to get your hands around everything within a millisecond, and that's what it is going to require," said Jim Gerlach, president of A/C Trading, a brokerage in Fowler, Indiana.
"Right now, the way it's set up, it's going to favor the high-frequency traders and the computer-generated traders," Gerlach said.
Asian analysts also said they feared volatility.
"I think the exchange is trying to boost volumes as it faces competition," said Ker Chung Yang, a commodities analyst at Phillip Futures in Singapore.
"But the market will be open during the release of data from the USDA, so from an investor's point of view it is a bit of a concern as there will be more volatility in the market."
JUNE USDA REPORTS FIRST TESTS OF CME SCHEDULE
USDA is scheduled to release its next monthly supply and demand report on June 12 and hotly anticipated U.S. acreage and quarterly stocks reports on June 29.
Futures broker R.J. O'Brien has urged the CME and ICE to keep grain markets shut for two hours after the reports are released.
Even a half-hour pause would help, said Dale Durchholz, an analyst with AgriVisor in Bloomington, Illinois.
"People say we release unemployment numbers during trading hours. (But) they aren't nearly as complex," Durchholz said. "I would think for everybody concerned, having a short break is just common sense," Durchholz said.
Aside from USDA crop report days, analysts said traders should be able to adjust to the new schedule. CME, which owns the Chicago Board of Trade, received U.S. regulatory approval on Friday to expand its trading day from 17 hours to 21 hours, starting at 5 p.m. CDT (2200 GMT) Sunday.
The change followed three weeks of gyrations and amended plans as CME struggled to balance the needs of its historic core constituency -- the commercial grain trade -- and the demands of large funds and computer-based trading operations that could benefit from expanded hours.
CBOT grains will trade electronically on a continuous basis from 5 p.m. to 2 p.m. Chicago time (2200 to 1900 GMT). The start is an hour earlier than the current schedule.
Trade in CME's open-outcry pits will not change, running from 9:30 a.m. to 1:15 p.m. CDT (1430 to 1815 GMT). The procedures for determining daily settlement prices will remain the same as well.
ICE challenged CME's 160-year dominance of the global grain trade by launching its own U.S. corn, soy and wheat futures on May 14. Daily trading volume in these new, all-electronic ICE products so far has totaled only a small fraction of CME's daily grains volume.
But ICE appeared to force CME's hand in extending the trading hours.
CME in late April originally sought to increase its trading day to 22 hours, hewing close to ICE's schedule, but pared down its plan after grain groups complained the longer cycle would drive up costs. Also, the extra time in the afternoon would give grain companies time to reconcile their trading accounts and perform other back-office operations.
"I think they probably responded to some of the business issues that the grain trade was concerned about in being able to manage their books," Durchholz said.
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