CME Group expands grain-trading hours to answer ICE

Are grain pit traders getting squeezed out?

Spread Liquidity

Longer exchange hours may spread liquidity too thin in grain markets accustomed to the bulk of the buyers and sellers operating during pit trading from 9:30 a.m. to 1:15 p.m., which may make futures less useful as hedging tools, said Jason Britt, the president of Central States Commodities Inc. in Kansas City, Missouri.

“Is it stretching the liquidity out over too many hours?” Britt said by telephone from his office at the Livestock Exchange Building in Kansas City. “It felt like a knee-jerk reaction to ICE instead of people’s need to do business for 22 hours.”

CFTC Commissioner Bart Chilton, in an e-mail on May 18, said he was a “reluctant supporter” of the longer trading hours. “We need to look more in-depth at how markets have morphed to guarantee that price discovery and risk management remain the uppermost of priorities,” he said.

Will Adapt

Scott Irwin, an agricultural economist at the University of Illinois at Urbana-Champaign, said he is “100 percent” confident traders will adapt to the expanded hours.

“It’s not like this doesn’t happen in other commodity markets like oil or in the financial or currency markets,” Irwin said. “It opens up the opportunity for greater participation in the market.”

The amount of electronic trading probably will increase as more people have access to the grain markets globally, meaning brokers who already work long hours will need to work more, said Britt of Central Commodities, who starts work before 6 a.m. and “sleeps with the computer right next to the bed.” In their quest to increase profits, exchanges need to remember their purpose, he said.

“This isn’t a game,” Britt said. “This is risk management for elevators and for operators. This isn’t about computers running a trade. This is about trading supply-and- demand fundamentals, and I don’t think they want to forget that.”

Bloomberg News

--Editors: Steve Stroth, Millie Munshi

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