What Longer Trading Hours Mean to Producers
May 02, 2012
The CME has officially announced they will be changing their electronic trading hours. Corn, Wheat, Beans, Meal, SoyOil, Oats and Rough Rice will all soon be trading 22 hours a day starting on May 13th. From what I have heard we will be open each trading day from 6pm until the following 4pm. On Sunday nights we will actually open at 5pm rather than 6pm. Although markets trade until 4:00pm CST, daily settlements will continue to be based on the 1:15pm CST close each day. You may not realize it, but this a complete game changer for the industry as a whole and may actually be a much bigger deal than the exchange has anticipated. Fundamental traders and farmers may find themselves at a real disadvantage to the ever more powerful high-frequency traders, especially on days when the USDA releases a significant report. No longer will one be able to digest the information and formulate a strategy to better hedge their crops as the split second reaction of the "algorithm" traders and high-tech crowd will have already jumped the trade. No longer will farmers be able to field calls from their advisors and develop a game plan or strategy in regards to the numbers as it will be too late. Being open until 4pm is NOT the problem. In fact I am all for the market staying open a little longer as I believe it gives the producer a better chance to price more bushels and hedge their risk, but being open during the release of the USDA data gives the high-flying tech crowd an undecided advantage. With the world screaming that "speculation" is ruining our commodity markets and unfairly manipulating price, I am afraid the exchange may have taken a step in the wrong direction with this move. I understand the CME Group is only trying their best to compete with the pressure from the ICE exchange who is going to launch new electronic Ag contracts this month with extended 22-hour trading hours, but when is the government going to step in and start looking out for what is best for the farmer or the individuals that these exchanges were originally designed to help protect. Instead it is all about competing for market share, exchange fees, higher volume, etc... This isn't about creating more direct market access, or creating more liquidity and less volatility for the producers. This unfortunately is all about money, greed and competition. Unfortunately form my perspective it looks like the farmer and the traditional grain traders will once again be footing the bill. Talking or writing letters to your Congressmen, the CFTC or USDA maybe the only hope for having this decision reversed. Unless your a farmer that has the time sit on top of your computer at exactly 7:30am CST on the day of the USDA report and you are extremely well versed in electronic order entry, high frequency trading and have an internet connection that is lightening fast this is NOT to our advantage. I repeat if you are a farmer this NOT to your advantage regardless of what song and dance they are trying to sell us! Remember, speed is essential for these algorithm program type high-frequency traders that move huge volume off of the news headlines and reports. Basically the guy with the firms with the fastest internet connections will have an undecided advantage on USDA report days. The high-frequency traders are now happy, the exchange is happy as volume increase and the rest of us are left scratching our head.
One very well respected trader in the industry wrote me the following: "Obviously, like all of us, I don't like the idea of a 22 hour trading day. It is particularly tough to swallow given that the ICE has essentially hi-jacked the CME/(Cbot) franchise. It is too early to pass judgement, but my quick read is that like the success that ICE has had in mimicking the NYMEX energy contracts, they have better than a 50/50 chance of draining CME volume away. I think this also another nail in the coffin for the open outcry session and importantly, pit traded options. The CME has to compete based on a commercial viable physical delivery contract(s) that draws the hedger. But at the end of the day, its about serving the largest segment of trade...and it's not the hedger, unfortunately. If successful and I believe it will be, more consolidation is inevitable...further pressuring the retail commission business. Interesting times...adapt or perish."
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