Tuesday September 16, 2014

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CBOT set to shorten U.S. grain trading day

Markets to remain open during key agricultural reports

The Chicago Board of Trade won regulatory clearance to shorten the trading cycle for U.S. grain markets after a move to extend activity hurt liquidity.

CBOT, owned by CME Group Inc., said it will cut futures and options trading for crops such as wheat, corn and soybeans to 17.5 hours per session from 21 hours starting on April 8.

The U.S. Commodity Futures Trading Commission said it did not object to the plan, following a 10-day review.

The reduction will mark the second time in 20 years that complaints from traders have derailed attempts by the exchange to expand trading hours for the marketplace, used to set food prices around the world.

It comes less than a year after CBOT increased the cycle to 21 hours a session from 17 hours in response to a challenge from arch-rival IntercontinentalExchange Inc. (ICE) in May began electronic trading on a 22-hour basis.

Trading commodities, including grains, is a multibillion-dollar business that has grown increasingly competitive as global demand for natural resources has surged.

CBOT has been dominant in agricultural commodities in the United States and, prior to ICE's launch, operated the country's only exchange for corn and soy.

However, grain traders said the Board of Trade's expanded hours spread out volume and reduced liquidity. The exchange last week confirmed that "quantitative evidence" supported the complaints.

Agricultural markets are ill-suited to long trading cycles because traditional participants, including farmers, exporters and managers of grain elevators, need to spend significant time growing, acquiring and transporting grain, said Bart Vance, managing director for Atlas Physical Grains.

"We've got to line up trucks; we've got to line up rail cars; we've got to line up barges; we've got to get bids and offers; we've got to find out what customers are willing to pay; those all take conversations," he said.

"Traditional market"

Most other major commodity exchanges, including the CME's New York Mercantile Exchange, have already shifted to near 24-hour trading cycles as China's rise has spurred demand for Asia-hours activity, while hedge funds and high-frequency traders have clamoured for greater access.

Under the reduced schedule, electronic trading will run from 7 p.m. to 7:45 a.m. CT Sunday to Friday. Trading will pause for 45 minutes before resuming on the screen and in Chicago's historic open-outcry pits until 1:15 p.m CT.

"Not every market is going to react to a 24-hour trade day as well as another, and I think the grains are certainly an example of that," said Jay Homan, a retired oat trader who spent 35 years working on the CBOT floor.

"It's a very traditional market," he said. "Traders are a very independent lot. Farmers are a very independent lot. They don't like people changing their routine."

The longer cycle at the CBOT, implemented last May, kept grain markets open for the first time during the release of key monthly reports from the U.S. Department of Agriculture, which often cause sharp swings in prices.

Trading will still be open when USDA releases major crop reports at 11 a.m. CT.

"Arbor Hour" resurrected

CBOT in 1993 expanded the trading day by opening its grain markets an hour earlier than normal at 8:30 a.m. CDT to capture business from overseas.

The change, nicknamed the "Arbor Hour" because it was backed by then-chairman Patrick Arbor, lasted only a few months before being reversed due to an outcry from traders who did not want to work longer days.

Arbor supported last year's extension of trading hours but said this week that he was pleased the opening bell will ring at 8:30 a.m. CT under the reduced cycle. The markets traditionally opened at 9:30 a.m. CT following a pause in trading.

"It's a restoration of the Arbor Hour," he said in a phone interview while on vacation in Mexico.

-- Tom Polansek writes for Reuters from Chicago.


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