Following a growing trend in the exchange world, the Minneapolis Grain Exchange (MGEX) announced that it would close its trading pits and transition to fully electronic trading beginning Dec. 19. To help facilitate the transition, MGEX will offer a fee waiver program for floor traders who trade for their own account and introduce a liquidity provider program and market maker program. Exchange fees for electronic trading permit holders will be waived through Jan. 31, 2009.
“While we regret to see the end of open outcry trading, the new fee programs provide an opportunity for global growth in our Hard Red Spring Wheat contract,” said MGEX Board Chairman Scott Cordes in a statement.
“I can’t see how this will affect spring wheat prices or the functioning of the market in any appreciable way” says Elaine Kub, analyst at DTN. “There are few enough commercial players in spring wheat as it is that the loss of a pit where information can be shared person-to-person isn’t such a disaster. They can still pass that information along without a physical location,” she says.
Andy Nybo, senior analyst at Tabb Group, expects MGEX’s move to electronic trading to attract a broader user base over time, since he says smaller firms like MGEX that trade futures and options on grains tend to attract specialized customers that use these products for hedging, inventory and price management purposes, and electronic trading allows for easier access.
In February, ICE Futures U.S. also shut down its trading floor to make way for all-electronic trading. Earlier this year, in a move expected to extend open outcry trading in Chicago, CME Group combined its trading floors at the Chicago Board of Trade building.
“What does this foreshadow for the Chicago pits? Probably not much. Minneapolis has about one tenth of the open interest in wheat futures that Chicago does, so while this move on MGEX’s part is motivated by efficiency, Chicago may always have the economy of scale to keep a pit in place. There’s the chance of some unforeseen problems arising and reinforcing Chicago’s belief in the necessity of a pit,” Kub says.