NCBA: Concerns CME Group Changes Won't Fix Market Volatility

February 11, 2016 12:42 PM

The CME Group has proposed a number of recent changes in an effort to resolve instability seen in cattle markets. National Cattlemen’s Beef Association (NCBA) officials say the moves aren’t addressing the problem areas and more communication is needed between the organizations.

On Wednesday, CME Group announced a change in trading hours, a review of a live cattle market and the creation of a working group with NCBA.

There was no discussion between NCBA and CME Group in regards to the shortening of trade hours, says Colin Woodall, NCBA senior vice president of government affairs. The only mention of possible reductions in trade time for cattle markets was made during a committee meeting held at the Cattle Industry Convention in San Diego last month.

“Recently, the cattle markets have been susceptible to volatile limit price moves without corresponding market news,” Woodall says. “The result has been decreased confidence for cattlemen using the futures markets as a risk protection tool. This is not an issue for the government to address, but an issue the industry can resolve by working with CME.”


Beef Producers Ask for More Transparency from CME



NCBA members sent a letter to Terry Duffy, executive chairman and president of CME Group, on Jan. 13 detailing five concerns with cattle futures trading. Areas for possible resolutions included:

  1. Implementing messaging standards similar to other commodities
  2. Introducing latency (brief one second delays) in trade
  3. “Spoofing” by traders to manipulate markets
  4. The release of audit trail data for analysis
  5. Better reporting of trade violators and market misuse

NCBA would like to see those five concerns put as a priority by CME Group. Thus far messaging has been the only item addressed with CME Group implementing a messaging policy as of Feb. 1 to limit high-frequency trading.

“While CME has announced certain measures, the effect of automated trading remains unresolved,” Woodall says. “The market needs liquidity, but it must also serve the function of a meaningful risk management tool.”

During discussions at the Cattle Industry Convention cattlemen and CME Group management all agreed the dialogue needs to continue. A working group has been formed with the organizations, but it hasn’t been utilized in recent decisions made by CME Group, Woodall says.

No formal comments or input was made by NCBA members in regards to the shortening of trade hours or review of the Worthing, S.D. live cattle delivery point.

“We want to make sure the working group is being utilized to evaluate and get comments on any proposal,” Woodall adds.

NCBA officials are still trying to determine why a priority was set to make changes with trade hours and not addressing volatile cattle markets.

“The underlying issue is trying to mitigate volatility,” Woodall says.

In the fall of 2015, cattle futures saw wide swings in price in just 30 minutes to an hour. Rises and falls of $2/cwt were not uncommon when looking at days like Oct. 1. NCBA would like to know if the new messaging policy could have altered the market and if any other actions might create change in volatile markets.

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