UPDATE 3-CME Group to reduce nearly non-stop grain trading cycle

Tue Jan 29, 2013 6:52pm EST

* CME supports trading halt for crop reports if others pause
    * ICE says to keep markets open for data reports
    * CME apologizes for CEO's comments in Reuters interview


    By Tom Polansek
    CHICAGO, Jan 29 (Reuters) - CME Group said on
Tuesday it will reduce the nearly non-stop trading cycle for its
U.S. grain and oilseed markets, and supported a trading halt at
all exchanges during the release of major agricultural reports.
    CME, which owns the Chicago Board of Trade, said it had not
yet determined exactly what its new trading hours will be.
    Just eight months ago, the exchange operator upended the
grain industry by increasing electronic hours to 21 hours a day
from 17 hours a day to fend off competition from its rival,
IntercontinentalExchange.
    The longer cycle kept futures and options markets for crops
like corn, wheat and soybeans open for the first time during the
release of key monthly reports from the U.S. Department of
Agriculture, which often cause sharp swings in prices.
    Traders formerly had two hours to analyze the reports before
trading resumed and some have called on CME to pause trading so
they can digest such data.
    "CME Group understands the frustration of many of our
customers," CME wrote in a letter to traders. "We would support
a halt, as long as it was unified for all venues."
    ICE on Tuesday vowed to keep its markets open for crop
reports. 
    CME launched a survey last week asking customers whether
trading hours should be reduced. It decided to trim hours before
the survey period ends on Thursday. 
    The exchange operator said it will "vet alternatives" for
the reduced schedule and release more details in the coming
weeks.
    Traders for months had complained the longer cycle was
spreading out volume, reducing liquidity and increasing
volatility. They had circulated a petition asking CME to shorten
the hours, noting the threat from ICE turned out to be mostly
hollow.
    "I guess we won," said P.J. Quaid, an independent broker in
the corn options pit, who had supported a shorter cycle.
    Quaid said some of his customers had stopped trading because
the longer cycle had increased the risk of maintaining positions
in the markets.
    
    CME REGRET
    Quaid was among a group of traders upset by comments CME
Chief Executive Phupinder Gill made in an interview with Reuters
that downplayed concerns about "live" market releases during
USDA reports.
    Gill had said halting trading "doesn't make sense" and that
traders who wanted a pause were a small and "very loud" minority
who were resistant to change. 
    CME on Tuesday apologized for Gill's comments, saying they
did not represent the exchange operator's commitments to "deep
and liquid grain markets" or to hearing feedback from all
customers.
    The decision to reduce trading hours came after CME
Executive Chairman Terrence Duffy told Reuters in October that
electronic hours would not be cut because CME had to stay
competitive with ICE. 
    The Commodity Futures Trading Commission must approve
changes in trading hours.
    
    FIRST STEP
    Tom Grisafi, president of Indiana Grain Company, welcomed
CME's about-face after he initially supported round-the-clock
trading.
    "I was one of the ones that wanted to flip the switch and
let it be 21-, 22-, 23-hour-trade; but then it did not work," he
said. "The markets were broken. People packed up and left town."
    The National Grain & Feed Association, which represents
thousands of country grain elevators and agricultural
processors, called the move a "positive first step." 
    The group still wants a trading halt when data is released
because the participation of high-frequency traders in the grain
markets has "raised concerns about volatile futures market moves
immediately preceding and following the release of USDA
reports."
    The USDA in September decided to change the time it issues
monthly crop reports to 11 a.m. CST (1700 GMT) from 7:30 a.m.
CST because CME expanded the trading cycle. The later release,
which allows for more liquidity in the markets, took effect for
the first time just three weeks ago.
    A USDA spokesman was not immediately available to say
whether the department will reconsider its release schedule
again.
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