CHICAGO (Reuters) - CME Group Inc (CME.O) will maintain the nearly round-the-clock electronic grain-trading that it implemented in May despite criticism by some traders that the new format is hurting market liquidity, a top executive told Reuters on Monday.
The exchange expanded the grain trading session to fend off a challenge from rival IntercontinentalExchange (ICE.N).
Grain traders have circulated a petition calling on CME, owner of the Chicago Board of Trade, to reduce its 21-hour trading day because they say the longer cycle has spread out volume, cutting liquidity and increasing volatility.
They note the threat of ICE poaching business from CME has so far proven mostly hollow.
“Just because the IntercontinentalExchange has not garnered a lot of market share... there is a competitive issue for us,” CME Executive Chairman Terrence Duffy said. “We need to remain competitive and we will keep our markets open as long as others are open at that time.”
Until May, CME grains traded for 17 hours a day, with a 2-1/4 hour pause in electronic trading from 7:15 a.m. to 9:30 a.m. CDT, the start of open-outcry dealing, and another gap from 1:15 p.m. to 6 p.m. EDT.
But arch-rival ICE’s surprise launch this spring of look-alike wheat, corn and soy contracts - on a 22-hour basis - forced CME’s hand, spurring it to join other major commodity markets that years ago moved to near round-the-clock trade to cater to hedge funds and Asian traders.
On Thursday, Bunge Ltd (BG.N), one of the world’s largest agricultural trading houses, threw its weight behind the effort to reduce hours, telling Reuters that 21-hour trading was “too much” for traders and merchants to monitor.
Prior to Monday’s interview, CME had said it was too early to say what the impact of expanded hours was on the grain markets. The hours were “something we continue to monitor and talk with our customers about,” the exchange had said.
ICE’s five U.S. grain contracts saw a total of 35,632 lots traded in September, the lowest volume since they were launched in May. Activity peaked in July, with 84,024 contracts traded.
The five equivalent contracts traded 13 million contracts on CME.
Still, Duffy said CME will not budge on electronic hours.
“If somebody else lists our products with those hours, we will remain competitive no matter who it is or what product it is,” Duffy said.
Duffy said he would be open to an earlier close to open-outcry trading.
Some market participants who advocated for a 2 p.m. close to open-outcry trading are “re-evaluating that,” Duffy said.
After expanding electronic hours in May, CME initially kept the closing time for open-outcry trading at the traditional time of 1:15 p.m.
However, floor traders and grain elevator managers said the closing times for pit and electronic trading should be synchronized to avoid confusion about trading hours and settlement prices, and CME decided both markets would close at 2 p.m.
Yet, P.J. Quaid, an independent broker in the corn options pit, said he would not support an earlier close for open-outcry trading unless electronic hours were reduced too.
Floor traders will lose business, however big or small, if electronic trading is open while the pits are closed, he said.
“If they’re not going to change the screen, we’re not going to change the pit,” Quaid said.
Reporting by Ann Saphir; Editing by Bob Burgdorfer and Andrew Hay