July 23, 2015 / 4:10 PM / in 4 years

CME fields complaints on soy crush spread after futures pits close

CHICAGO, July 23 (Reuters) - CME Group is looking into complaints by grain brokers who say the exchange’s trading platform cannot accommodate some popular spread trades involving soybean futures after the July 6 close-down of century-old futures trading pits, traders said on Thursday.

“There’s a South American soy processor who wants to put on 1,500 crush spreads but hasn’t been able to get it legged in,” said Peter Kelly, a veteran soyoil broker. “It’s the kind of trade that was easy to do in the pit. But there’s not a market for it on the screen.”

Traders are seeking a rule change or a trading platform that allows for hybrid spreads but are unsure if CME will comply. CME held an emergency meeting on the matter on Wednesday.

Commenting on that meeting, CME spokesman Chris Grams said: “We regularly talk with our customers about ways to enhance our markets.”

Soybean processors routinely establish a “crush spread” by buying soybean contracts and selling soymeal and oil contracts to lock in their profit margin. Before the futures pits closed, traders routinely took on the risk by offering the three-legged spread at one quoted price, in dollars and cents per bushel.

But CME rules are running afoul of customer reality.

CME’s electronic matching software only allows for a standard crush spread at the ratio of 10 soybean contracts to 11 soymeal and 9 soyoil. But South American processors, for example, like to buy 7 soybean futures and sell 11 meal and 11 soyoil to hedge what is a higher oil yield than at U.S. crushers, traders said.

“Anything out of the 9, 10, 11 ratio - they can’t handle,” said a second soy broker.

“It’s not something that we’ll worry about and have a solution for next month,” said a third broker whose customer needs to put on the usual hybrid crush spread by Wednesday. “This has to be done by next Wednesday before the August goes into delivery and there are no price limits.”

“I just need a platform in place to get the trade done,” he added.

CME closed its open-outcry futures pits despite resistance from many floor brokers and traders who argued the move could hurt end-users of the giant Treasury and Eurodollar markets who use multi-legged spreads similar to the soy crushers.

“Unless you’re Goldman Sachs, Citadel, a big fund that trades big volume, CME doesn’t care,” said Kelly. (Reporting by Christine Stebbins; Editing by David Gregorio)

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