CME Group announces changes to livestock trading

By Spencer Chase

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Feb. 10, 2016 - The markets for live and feeder cattle and lean hogs are in for some changes after industry representatives expressed concerns to CME Group officials about increasing market volatility.

The CME Group announced the changes, including shorter trading hours and the formation of a working group to consider other modifications, in a release Wednesday morning.

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“Nothing is more important to us than the integrity of our markets, which help farmers and ranchers to discover prices and transfer risk,” Tim Andriesen, CME Group managing director of agricultural products, said in the release. “We believe these actions will further enhance our cattle markets for all participants.”

The changes in trading hours were said to be brought about by consumer requests. Trading on open outcry options will now last from 8:30 a.m.-1:02 p.m. Central Time and CME Globex futures and options will start at the same time and stay open until 1:05 p.m. According to the CME Group, the new hours reflect the “period of greatest liquidity” within the markets in question; during 2015, about 87 percent of trading happened in these hours.

The Commodity Futures Trading Commission must approve the new trading hours, which the CME Group wants to have in place by the end of the month.

The CME Group also announced intentions to form a working group with members of the National Cattlemen's Beef Association “to discuss other possible enhancements to its cattle markets, including, but not limited to, circuit breakers and other measures to further heighten market quality.”

Representatives from the CME Group, including Executive Director Terry Duffy, traveled to the Cattle Industry Convention in San Diego at the end of January after NCBA leaders sent a letter to Duffy expressing concerns the futures markets, particularly about the use of high frequency trading and the unprecedented volatility in markets.

“This is a major risk-management tool for cattle producers across the country, and as long as it works, it's great,” Colin Woodall, NCBA's vice president of government affairs, told Agri-Pulse in San Diego. “But with the volatility we have seen ... they can't use it as an actual risk management tool, so we've got to fix that.”

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Duffy told reporters in San Diego that he thought market volatility “could be mitigated to some extent” with shorter trading hours on livestock contracts. He also announced a new messaging policy for livestock futures that will prevent livestock trading from exceeding certain volume ratios in an attempt to tame some of that market volatility.

CME Group also said it will conduct a public review with cattle customers on whether a discount is warranted at its delivery point for live cattle futures in Worthing, South Dakota. The review will take place this month and potential changes will be announced by the end of March.

 

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