OMAHA (DTN) — The Commodity Futures Trading Commission has approved CME Group’s request for expedited approval of its new 21-hour trading day proposal, and the new hours will go into effect Sunday, according to a CME news release.
Electronic trading will open at 5 p.m. central time Sunday for the Monday, May 21, trading day. The electronic markets will close at 2 p.m. The Kansas City Board of Trade and the Minneapolis Grain Exchange will also begin trading the new hours this weekend.
Daily settlements will continue to be based on market activity at or around 1:15 p.m. Central Time each day — a volume-weighted combination of where Globex and the pits are trading at or near that time. Also, open-outcry trading hours will continue to operate from 9:30 a.m. to 1:15 p.m. CT Monday to Friday, according to the release.
CME’s original proposal to expand electronic trading from 6 p.m to 4 p.m. initially frustrated many of the exchange’s commercial users, who argued it created logistical bookkeeping and back office problems that would increase labor costs. CFTC required a 10-day period so that it could review the rule, and during that time the National Grain and Feed Association and the North American Export Grain Association worked with CME to revise its proposal to hours the industry considered more workable.
The new hours were announced Thursday morning. CME withdrew its original proposal and submitted a new one along with a request for expedited approval. As of Thursday, it was unclear whether CFTC would approve the request right away or impose another 10-day waiting period.
The National Corn Growers Association and the National Farmers Union had urged the CFTC to take its time in approving the new rules, arguing that releasing USDA reports while electronic markets are trading could put farmers at a disadvantage to large trading companies employing high-frequency trading strategies.
“The public, especially farmers and others with an interest in fair and functional markets, would be well-served if the CFTC were to allow for further dialog,” said NFU President Roger Johnson. “Given these concerns, along with the very recent introduction of a 21-hour trading day by CME Group at the end of the most recent CFTC review period, NFU asks that a 30-day comment period be opened. Stakeholders in the grain and oilseeds markets need further opportunity to understand and provide input about the proposed changes.”
CME decided to expand its electronic trading hours after competitor IntercontinentalExchange (ICE) announced it was introducing new agriculture commodity contracts that would trade 22 hours a day, including through USDA report releases. ICE’s lower margin requirements and longer hours poised it to attract speculative traders, potentially at the cost of CME volume.
“As currently formulated, both ICE’s plans for new contracts with greatly expanded trading hours and the CME Group’s plans to expand hours raise serious issues that potentially place the nation’s corn growers at a marketing disadvantage,” NCGA President Garry Niemeyer wrote in a letter sent to CFTC Chair Gary Gensler on Thursday. “Approval of these major market changes without a 30-day comment period is ill-timed since many growers are currently preoccupied with planting. We believe that there is no compelling reason why 22-hour trading needs to begin imminently.”
USDA has said it’s discussing whether or not to release the report when the markets are closed. Several other options have been floating around, including a halt in trading for a window of time around report releases or releasing reports at a time when the market volume is at its highest in order to minimize potential impact.
“Concerns regarding the volatile price swings that occur when U.S. Department of Agriculture reports are released have been voiced,” NFU’s Johnson said. “Additionally, NFU members are uncertain about the availability of accurate and updated bids from grain purchasers after the open outcry trading day has closed with an established settlement price but electronic markets remain open.”
DTN Analyst John Sanow said expanded hours “aren’t exactly welcomed by many in the agricultural industry. On most days it will just mean an extra 2 hours and 45 minutes of trading.
“However, report days will be the most challenging with knee-jerk reactions heightened by headline-driven trading programs until numbers can be dug into deeper. By and large, though, the market will continue to do what it always does: follow trends and spread action (the true measure of supply and demand).”
Source: DTN
Posted by Russell Nemetz
