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CME considering a move back to fewer trade hours
Indiana Correspondent

CHICAGO, Ill. — The decision by CME Group to extend its trading hours last May from 17 to 21 hours a day was not universally embraced by feed and commodities organizations.

So, when CME recently reversed itself and announced it would cut trading hours, the move was greeted positively by organizations such as the National Grain and Feed Assoc. (NGFA). But even though CME said it would reduce its trading hours, it has not announced what those hours will be.

Most of the concern over extended hours was voiced by smaller commodity firms that felt they were at a competitive disadvantage because they didn’t have the staff to handle expanded hours. In addition, many of them are based in rural areas and don’t have the technology infrastructure of major firms in urban areas.

Todd Kemp, vice president of marketing and treasurer for the NGFA in Washington, D.C., said the turmoil over extended trading hours dates to last year when Atlanta-based IntercontinentalExchange, Inc. (ICE) unilaterally announced it was extending hours.

“Shortly after that, CME announced it would start trading 21 hours a day,” said Kemp. “Today, the business day is going in the opposite direction, although our membership has a range of views on the issue.”

In reversing its decision of nine months ago, CME said it was responding to the views of its customers. After extending its trading day, CME began surveying customers, asking them what they thought about the change. CME said the feedback it received from customers showed they were concerned about increased volatility in the markets.

“Any time the CME announces a change, it’s a big deal,” said Kemp.

Chris Grams, a spokesman for the CME in Chicago, said it has received “significant feedback” from customers and traders. While the announcement to reduce the trading day has pleased many customers, he said there is another concern the CME and trading organizations are watching closely.

When expanded hours were in effect, the market remained open during the release of USDA reports. CME said it is concerned that keeping the market open during that time gives algorithmic traders an unfair advantage.

“We’re willing to consider a halt if other exchanges consider a halt,” said Grams. “We would certainly consider that.” But if all exchanges don’t agree to do that, he said it puts CME at a competitive disadvantage if it closes while other exchanges remain open.
Kemp said his organization has taken the view there should be “a short pause while the data is released.”

“Trading through the reports could lead to unequal access,” he explained. “There is slow Internet in rural areas, some firms have small staff and they can’t analyze that data as quickly as larger firms.

“We have noticed that there is a difference in the amount of trading immediately before and after the releases when the markets are open. If we have volatile disruptions around these reports, there is a concern that through this activity there is no correlation to price discovery, which is what the market is designed to do.”

Among NGFA’s membership, Kemp said there is “a broad consensus that a pause would be a healthy thing. We have sent a letter to the CME asking them for a pause. We’re willing to discuss a pause in trading if others would.”

In a letter to members, Terrence Duffy, executive chair and president of CME Group, and Phupinder Gill, its CEO, said the company is “committed to the integrity of our deep and liquid grain markets, and listen intently to feedback from all of our customers.”
They wrote they regretted recent media reports over trading hours did not seem to represent that commitment.

“Since implementing extended trading hours in May of 2012, we’ve received significant customer feedback from a broad cross-section of market participants, including through a formal survey we implemented last week,” said Duffy and Gill in their letter dated Jan. 29.

“Though our survey is still under way, we have enough of your responses to be able to decide to reduce trading hours for our grain and oilseed markets, pending CFTC (Commodity Futures Trading Commission) approval. However, as there were varying opinions on what the reduced hours should be, we are continuing to vet alternatives with our customer base.”

Duffy and Gill also addressed the idea of a trading pause while USDA reports are released: “In addition, with respect to market pauses during USDA reports, CME Group understands the frustration of many of our customers, and we are open to considering a market pause allowing participants to evaluate the data if all exchanges and trading venues would do the same.

“We would support a halt, as long as it was unified for all venues, as that would best benefit all customers by ensuring the necessary market liquidity needed for effective price discovery during this time.”

Meanwhile, the NGFA said it will work with CME to address the concern over trading while USDA reports are released.

“The NGFA consistently has voiced concerns of many market participants that the release of such USDA reports during electronic trading hours potentially could increase market volatility and disadvantage some market participants because of unequal access to USDA report data in a timely manner because of such factors as lower Internet bandwidth speeds in rural areas,” said Kemp. “Participation of high-frequency traders also has raised concerns about volatile futures market moves immediately preceding and following the release of USDA reports.”