* Volatility-fuelled growth brings user, regulator demands
* Changed U.S. market hours, French silo row add to pressure
* Consensus culture, healthy volumes may mean gradual change
By Gus Trompiz
PARIS, Nov 27 A new release time for the world's
most closely watched crop reports and controversy over a silo in
France's top grain port could hasten a further transformation of
the Paris wheat market, as it grapples with a fast changing
Driven by dramatic weather-fuelled price swings in the past
five years, Paris-based wheat futures , operated by NYSE
Liffe, have emerged as Europe's benchmark wheat market
and a credible counterpart to the Chicago Board of Trade
, the world's biggest grain exchange.
This success has brought pressure from operators and
regulators to adapt the initial design of the Paris market,
tailor-made for the French grain sector in the 1990s, to suit a
broadening international base of commercial and financial users.
Futures markets allow operators in the grain sector, from
farmers to food manufacturers, to buy and sell in advance at a
certain price, thereby covering themselves against the sort of
weather-related supply volatility that has been exacerbated in
recent years by tightening global grain supply.
NYSE Liffe, whose Paris-based grain futures market is often
referred to by its former names, Euronext and Matif, said this
month it may extend trading hours from January and is reviewing
its flagship wheat contract to meet user needs.
"The Paris milling wheat contract has achieved a certain
maturity," Jean-Loic Begue-Turon, head of derivatives at InVivo,
France's largest farm cooperative group, said.
"The criticism you can make is that there is not enough
liquidity at a time when the desire to hedge risks is
In the first 10 months of this year, total volume for Paris
wheat futures was up 21 percent compared with the same period a
year earlier, NYSE Liffe reports.
With average daily volume of 28,000 lots of 50 tonnes each,
January-October volume represented about 300 million tonnes,
or more than twice the European Union's annual wheat output. But
this is still modest versus an equivalent of over 3 billion
tonnes traded in Chicago wheat futures in the same period.
Longer trading hours are seen as a way of making the market
more liquid, as this will cater to players outside western
Europe and also help two-way trading with Chicago.
Near-24-hour trading in U.S. futures and a change in the
time of the U.S. Department of Agriculture's (USDA) closely
scrutinised supply-and-demand reports - which from January will
come out just half an hour before the close in Paris - have
supported calls for longer hours.
"There has been a genuine internationalisation of the
milling wheat contract so expanding trading hours is important,"
Michel Portier, head of French consultancy Agritel, said.
CONSENSUS CULTURE STRAINED
But while operators tuned into world markets fret about a
frenzied final half hour of trading after USDA reports unless
Paris hours are extended in the evening, some commercial players
are pushing instead for an earlier start, in an echo of divisive
debate in Chicago over trading hours.
A controversial change in the quality requirements of
Senalia, the operator of a silo at Rouen port that is the sole
delivery point for Paris wheat futures, has shed light on other
aspects of the market that players say are outdated.
Some cite limited delivery capacity as leaving the market
prone to erratic prices before the expiry of contracts, while
others complain about an unbalanced contract calendar.
"The biggest issue for us is the gap between the May
contract and the November one," Rory Deverell, commodity risk
manager at INTL FC Stone Europe, said, referring to what are
respectively the last and first contracts of the crop year.
The long gap between contracts was keeping some farmers and
exporters out of the market, unable to hedge future deals
against volatile cash prices.
But a culture of adjustments based on consensus among the
core French membership, coupled with healthy growth, will likely
favour step-by-step changes and disappoint some in the market.
"Consensus is good but reactivity is very important," one
futures broker said. "The problem is that Euronext doesn't have
real pressure on it - they are growing very nicely."
Regulatory scrutiny, as authorities seek to curb market
volatility, has also added pressure to NYSE Liffe.
This comes as financial players like banks and investment
funds gain more influence in the Paris futures market, even if
the absence of position reporting makes their size unclear.
"We were a very French market until about three years ago.
Now there are banks and funds that are present worldwide,"
another futures broker said. "I see the financial part of the
volume at well over 10 percent."
NYSE Liffe has in the past year introduced "Commitment of
Traders" reports for its London soft commodity and feed wheat
contracts and plans to do the same in Paris from 2014, a move
firmly backed by users frustrated at a lack of transparency.
Such reports break down the involvement of different types of
operator within the market.
The exchange introduced this month delivery position limits
for its soft commodities in London, extending a policy it has in
Paris and which it hopes will satisfy upcoming EU market rules.
A separate French bank reform effort is considering
ring-fencing banks' proprietary trading and limiting high-speed
trading. But a single-country law would have scant impact on an
increasingly international Paris market, traders say.