By Cory G. Walters, Assistant Professor, University of Kentucky
The CME Group Inc, who oversees corn, soybeans, soft red wheat, and other agricultural commodities futures trading, expanded their trading hours, on Sunday May 20th. The initial reason for the change is because another competing exchange – IntercontinentalExchange Inc. (ICE) recently offered corn, soybeans, and wheat futures contracts with longer trading hours than those found at CME Group. Both the Kansas City Board of Trade and Minneapolis Grain Exchange plan on following the path of ICE and CME Group through additional trading hours. Trading hours for CME Group corn, soybeans, and wheat futures contracts will now encompass 21 hours of the day, up four hours from the traditional 17 hours. The four hour expansion impacts only electronic trading, not open outcry trading. Electronic trading will begin at 5 PM and run through 2 PM the following day, Sunday through Friday, Central time. Open outcry will keep their traditional hours from 9:30 AM to 1:15 PM, Monday through Friday, Central time. Trading will be closed for three hours from 2 PM to 5 PM.
Does electronic vs. open outcry trading matter? According to data from the CME Group, 93% of all trading volume for 2011 was conducted through electronic trading. The current trend has been to have more trades taking place electronically rather than open outcry. Concern will come when the first technical glitch takes place – Facebook's initial public offering caused a huge technical glitch on NASDAQ, which caused millions of orders to not be placed. The market was active but traders were unable to enter or exit positions. Electronic trading on futures exchanges will need to be prepared for massive spikes in volume, especially after the release of USDA reports.
ICE is now offering corn, soybeans, and wheat futures contracts, see: https://www.theice.com/us_grains.jhtml. The ICE corn futures contracts have been trading roughly 60 contracts per day since its start on Monday May 14th. In comparison, the CME Group corn futures trades roughly around 300,000 contracts per day.
Both CME Group and ICE are competing for traders over futures contracts offered at their exchange and contract specifications. However, ICE has a steep hill in front of them before they take over corn, soybeans, and wheat futures trading.
Electronic trading will take place through the release of important USDA reports such as monthly supply and demand and plantings reports. Initial reactions to USDA reports will flow immediately into prices where traditionally these reactions had to wait until markets opened. The possibility exists, though unlikely, where the USDA could move the release time of their reports.
Futures contracts are evolutionary - constantly changing and adapting. Last year the CME Group expanded daily price limits for agricultural commodities and a couple of years ago they changed delivery specifications in the wheat futures contract. Continue to expect further changes to rules and regulations associated with futures markets.