Longer Trading Days Raise Questions for Grain Groups

Two of the nation's largest grain groups issue a joint statement asking Commodity Futures Trading Commission to push public comment period on longer trading days.

Published on: May 11, 2012

A joint letter to the Commodity Futures Trading Commission from the National Grain and Feed Association and North American Export Grain Association is asking the regulatory agency to institute a 30-day public comment period to provide time to assess issues related to announced plans for a longer trading day.

InterContinental Exchange and the CME Group are going to launch longer trading days - CME in response to ICE. The first longer day is set to begin Sunday May 13 when ICE flips the switch. CME will start a week later. However both of the grain groups expressed key worries over the quick moves.

The groups say inadequate advance consideration with stakeholders of important ancillary issues raised by the two exchanges' plans to expand electronic trading to 22 hours is enough for CFTC to initiate a public comment period. If CFTC finds it is not feasible to fire up the comment period, the two groups urged the agency to approach ICE and the CME Group to encourage them to self-initiate a delay in their respective scheduled implementation dates.

Longer Trading Days Raise Questions for Grain Groups
Longer Trading Days Raise Questions for Grain Groups

The NGFA and NAEGA also emphasized that any delay in the expansion of electronic trading necessitated by the opportunity for public comment should apply to all futures exchanges equally. This would include the Kansas City Board of Trade and MGEX (formerly the Minneapolis Grain Exchange) that have signaled they will follow suit with ICE and CME Group.

The groups say they don't oppose "some reasonable and properly constructed expansion" of electronic trading hours, noting that some member companies believe doing so would enable hedging of cash grain and oilseed transactions over a longer period of the day. But they say the currently structured 22-hour days for grain and oilseeds raises "serious issues that could lead to competitive inequalities and impose significant additional costs" attributable to personnel requirements, as well as computer and accounting system changes.

Here are some key concerns expressed in the letter to CFTC:

Allowing electronic trading to be open during release of key statistical and economic reports by USDA won't give market participants time to assess and analyze information and adjust their market positions before trading resumes. "Trading through the release of these reports could lead to extreme volatility immediately following their release," the groups say.

Impact on back-office personnel is also a concern. These are the folks who reconcile trading activity, and given different closing times for open-outcry and electronic trading. The gropus note that the current 1:15 p.m. Central time closing for both open-outcry and electronic trading for CBOT grain and oilseed contracts provides sufficient time to allow firms to clow out and reconcile their trading activities and perform required accounting and other back-office functions before electronic trading re-opens at 6 p.m. The longer trading day would force the groups' members to add staff or paying extra overtime to work into the evening hours. The groups also note the difficulty confronting firms when trying to assess - in this very short time period - the software and system changes needed for the longer trading times.

There are a host of other questions that need answering as well, which has driven this request for a public comment period.