October 31, 2012 / 7:05 PM / 5 years ago

ICE: new grain contracts that upset industry are "good business"

* ICE lists U.S. grain contracts “at very low cost”-CEO

* Newly launched contracts “changed the game board”-CEO

* Some traders upset about extended grain cycle at rival CME

By Tom Polansek

CHICAGO, Oct 31 (Reuters) - IntercontinentalExchange’s newly launched U.S. grain futures are “good business” for the exchange, despite upsetting members of the agricultural industry, ICE’s chief executive said on Wednesday.

ICE surprised the farm sector this spring when it announced it would challenge rival CME Group’s iron grip on grain trading by launching lookalike grain and soy contracts on a 22-hour basis.

CME, owner of the Chicago Board of Trade, responded by extending the trading cycle for its benchmark grain and soy contracts to 21 hours per session from 17 hours.

ICE has attracted low volume for its contracts since their launch in May, but they are “good business” because the exchange lists them “at very low cost”, Chief Executive Officer Jeffrey Sprecher said on the sidelines of a futures conference in Chicago.

“It caused our competitors to react and in doing so it changed the game board, which is part of being competitive,” he said.

ICE’s five U.S. grain contracts saw a total of 35,632 lots change hands in September, the lowest volume since they began trading. Activity peaked in July, with 84,024 contracts traded.

The five equivalent contracts traded 13 million lots on CME last month.

Some grain traders, merchants and processors are unhappy with the ICE’s entry into U.S. grain markets. They blame ICE for forcing CME to extend its trading session to remain competitive, reducing liquidity and increasing volatility in the primary market by spreading out volume.

Traders have gathered more than 600 signatures on an electronic petition calling on CME to reduce trading hours, noting ICE has turned out to be a mostly hollow threat.

And last week Bunge Ltd, one of the world’s top agricultural trading houses, told Reuters it supported a shorter trading session.

However, CME will not reduce electronic trading hours “just because the IntercontinentalExchange has not garnered a lot of market share,” CME Executive Chairman Terrence Duffy told Reuters this week.

CME needs to stay competitive with exchanges listing lookalike contracts, he said.

CME cemented its dominance in world grain futures markets this month by striking a deal to buy the Kansas City Board of Trade, which trades U.S. wheat futures.

ICE’s Sprecher declined to say whether he wants to acquire the Minneapolis Grain Exchange, the last independently owned U.S. agricultural marketplace.

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