Revamped CBOT trading day splits morning burst in two
CHICAGO, April 29
CHICAGO, April 29 (Reuters) - Traders at the Chicago Board of Trade have been reluctant to adopt the exchange's new starting time, reducing the depth of the market early in the session and roiling plans to boost liquidity as the opening burst has been split in two.
The exchange's modified trading schedule, launched three weeks ago, is failing to attract big volumes at the open as some traders prefer to wait until the traditional starting time, which is an hour after the opening bell, before booking new deals.
The division of the opening burst, which has typically been one of the most active parts of the trading day, leaves traders wondering about the best time to wade into the market. Traders generally prefer to deal when the market is most active as a deep pool of liquidity ensures that bids or offers will not be left unfilled for long.
During the first three weeks of the newly modified trading session, trading volume in the front-month corn futures contract has been heavier at 9:30 a.m. CDT (1430 GMT) than during the market open at 8:30 a.m. CDT (1330 GMT) on eight of 15 days.
"What is the real open?" said Tony Rohrs, a farmer in northwest Ohio who trades futures to hedge his crop as well as to make additional money. "It is just a little confusing."
Rohrs said that sometimes he will wait to book trades even if he sees prices moving sharply early in the session in case there is a reversal at the 9:30 a.m. burst.
Wheat volumes were bigger during the second burst seven out of 15 times. Trading in soybeans has been more consistent, with volume during the first 10 minutes of trading eclipsing the burst that hits at 9:30 73 percent of the time.
"I do not know how to put my fingers on that," said Tom Grisafi, president and chief executive of trading firm Indiana Grain Co. "It screwed me up a few times."
The new grains open coincides with the start of trading in U.S. equities, and many speculators who trade both markets are more focused on the stock market. Gold and silver also are open for trading during that time and may be attracting attention away from grains.
"Speculators like myself are consumed with trading more volatile markets," Grisafi said. "I am not going to be bothered with a small position in corn when I can have a massive swing in gold."
A spokesman for CME Group, which owns the Chicago Board of Trade, declined to comment on trading activity under the new schedule.
Under the new CBOT schedule, open outcry trading in the exchange's vaunted pits runs from 8:30 a.m., one hour earlier than before, until 1:15 p.m. Pit trading in the 21-hour schedule, which CBOT ran for about a year, began at 9:30 a.m. and closed at 2 p.m.
Most volume in the extended session took place when the pits were open, even though more than 90 percent of all trading is done over computer screens without any input from traders on the floor. The 21-hour day was scrapped after traders complained that the extended session hurt liquidity, making it harder for buyers and sellers to find each other in the market.
CME quickly responded to trader complaints about the extended schedule. More than 600 traders, analysts and grain handlers last year signed an online petition calling on the exchange to shorten the trading day.
The exchange launched its 21-hour trading day May 2012 in a bid to ensure that rival InterContinentalExchange, which operates grain trading for 22 hours, did not poach CBOT volume with its look alike grain contracts. ICE volume has remained thin even with the longer session and reduced trading fees.
Under the new CBOT schedule, electronic trading runs from 7:00 p.m. CDT (2400 GMT) to 7:45 a.m. CDT (1245 GMT) Sunday to Friday. Trading then stops until 8:30 a.m. CDT (1330 GMT) -- a pause that market participants are calling the biscuit break -- before resuming electronically and in Chicago's open-outcry pits until 1:15 p.m CDT (1815 GMT).
The earlier start does not give traders enough time to digest the overnight news, which may be why many investors are waiting an hour after the market opens, a veteran floor trader said. Additionally, many commercial clients such as grain elevators are not ready to give instructions to traders that early in the morning.
The CBOT floor starts to fill up ahead of the 8:30 open, but most traders just stand around when the opening bell rings, ready to react in case the market swings violently early but not willing to initiate their strategy for the day.
On one recent morning, a trader giving a tour of the CBOT floor warned his guests that they would not be impressed by the opening bell, which used to be accompanied by a surge of activity and screaming brokers who waved their arms wildly to execute trades.
"You are not going to see that much," he said. "It is going to be noisy for about 15 seconds."
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