From the September 01, 2006 issue of Futures Magazine • Subscribe!

Grain traders adapt

Just days after the CBOT introduced side-by-side trading in its storied grain complex, electronic trading of those contracts, as well as in financial and metals futures, was halted by technical problems, triggering electronic shutdowns at exchanges in Kansas City, Minneapolis and Winnipeg on Aug. 4.

“We just kept on trading,” says Jay Homan, a market maker in the CBOT oats pit. Traders were able to use the pit open outcry trading platform at the CBOT, Kansas City Board of Trade (KCBT) and Minneapolis Grain Exchange (MGEX) to execute orders. By offering multiple ways to trade grains, the CBOT has increased security. “We had seamless trade,” Homan says. “Anything mechanical is going to break. It has been a tremendously dependable platform. Those things are going to happen.”

Prior to the glitch, the CBOT reported brisk activity in the first few days of side-by-side trading. On Aug. 1, a total of 436,154 contracts traded — 358,054 via open auction and 61,032 electronically. The CBOT agricultural options traded an additional 86,702 contracts. On Aug. 2 the CBOT’s electronic trading in soybeans was 17.96%, 23.21% in corn and 12.53% in wheat. At the KCBT electronic trading in wheat was 23.32% and at MGEX it was 19.61%.

David C. Hightower, a commodities analyst for Harfield Management, agrees that in context, the outage wasn’t a big problem, noting that the risk of big losses peaked in weeks before the launch of the side-by –side trading. “I’d definitely cut them some slack,” he says, adding that it is not uncommon for trading to be halted in open outcry pits or on electronic trading platforms.

Electronic trading at all the exchanges resumed around noon Friday after a 2-1/2 hour delay.

By Chris McMahon and Yesenia Salcedo

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