CME to pare back plan for expanded grain trading

CME Group is set to pare back its controversial plan for nearly around-the-clock grain trading in a compromise with grain firms that complained the shift would increase their costs, trade sources said on Wednesday.

As a result of the change, CME will not start trading 22 hours a day on May 21 as planned, sources said.

CME, which dominates agricultural commodities markets in the United States, will seek to expand trading of grain and soy futures and options to 21 hours a day, Monday to Friday, instead of the currently planned 22 hours, the sources told Reuters. The markets currently trade for 17 hours a day.

Under the modified plan, grain and soy markets will stay shut from 2 p.m. to 5 p.m. CDT (1900-2200 GMT), Monday to Friday, instead of 4 p.m. to 6 p.m. CDT, they said.

CME declined to comment.

"We are very supportive of that change," said Todd Kemp, vice president of marketing and treasurer of the National Grain and Feed Association, the largest U.S. grain group.

The grain association, which proposed the modification to CME, previously warned that the original schedule for 22-hour trading could significantly increase costs for grain firms that would have to add personnel or pay employees overtime to work into the evening hours.

Firms need to work after the markets close to reconcile their trading activities and perform required accounting and back-office operations before the next trading session begins.

"I don't think two hours was enough," said Karl Setzer, analyst for MaxYield Cooperative in Iowa.

TWEAKED PLAN

It was not immediately clear whether the modification would trigger a new 10-day review period required by the Commodity Futures Trading Commission.

The commission's 10-day review of CME's original plan for 22-hour trading was set to end on Thursday, according to the agency.

CME is seeking to expand its trading cycle in response to a challenge from rival IntercontinentalExchange, which launched new 22-hour grain and soy contracts on Monday to satisfy hedge funds and bigger traders who want round-the-clock access to grain markets.

Yet, ICE's contracts were off to a slow start, with about 1,000 corn futures contracts trading on Tuesday, compared to more than 200,000 contracts at CME's Chicago Board of Trade.

Atlanta-based ICE has declined to comment on CME's push for an extended trading cycle.

It said on Tuesday that traders would be attracted to its new grain markets for reasons other than trading hours, including the availability of privately negotiated transactions called "block trades" that are executed away from the broader market.

USDA CONCERNS PERSIST

CME's tweak does not address concerns that the expanded hours will increase volatility by keeping grain markets open when monthly U.S. Department of Agriculture crop reports are released.

Futures brokerages and grain groups have predicted traders will step back from the markets when USDA reports are issued to digest the data. The reports often cause sharp swings in prices.

CFTC Commissioner Scott O'Malia said in an interview that he supported CME's decision to seek a 21-hour trading day but added that he understood concerns about an extended trading cycle leading to liquidity problems.

O'Malia said he asked CFTC staff on Monday to conduct a robust economic analysis, starting with ICE, to determine how the extended day would impact the volume, pricing, and liquidity in the grain market.

"We want our markets to remain competitive but we also want to make sure we are getting good liquidity, good price formation," he said. "We need to do this with our eyes wide open and make sure there aren't problems."

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