Chicago | Reuters — Open-outcry traders sprang into action during an electronic trading halt in CME Group agricultural markets on Tuesday, but a better solution to the outage would have been to close the pits down too, traders and investors said a day later.
In chaos following the outage on CME’s electronic Globex platform, some orders sent to open-outcry grain pits went unfilled because there were not enough traders to handle the influx. And brokers said trades in the corn pit distorted the market for a key contract, which settled at a price out of line with where it traded before and after the outage.
The outage confirmed that open-outcry traders can no longer shoulder an unexpected flood of orders following a years-long exodus from the pits, traders and brokers said Wednesday.
The number of traders, brokers and clerks on CME’s cavernous agricultural trading floors has dwindled during the past decade due to the rise of faster and more efficient electronic trading, which now accounts for nearly 95 per cent of volume in grain markets.
“I think the guys on the floor did a fantastic job with a terrible nightmare situation for them, but they don’t have the numbers,” said Ted Seifried, vice-president of brokerage Zaner Group in Chicago.
“We should absolutely halt all trading, floor and electronic, if the Globex goes down,” he added.
CME, which owns the Chicago Board of Trade, Chicago Mercantile Exchange Group and others, declined to comment on the outage beyond a statement issued on Tuesday that cited an unidentified technical issue.
The outage began at 12:38 p.m. CT and was fixed by 2:15 p.m. CT, according to CME. By that time, grain markets had been closed for nearly an hour. Livestock markets, which trade longer hours, began trading again on Globex at 2:30 p.m.
Grain brokers on the floor said they “were besieged with orders from Globex traders who could not place their orders on the screens,” said Joe Ocrant, president of Chicago-based Oak Investment Group and a livestock trader. “There were not enough brokers to handle them.”
Traders who successfully entered orders during the outage said they were glad open-outcry trading remained open because it allowed them to continue to conduct business. Some viewed the Globex outage as evidence that the floor is still needed in an electronic age.
P.J. Quaid, a broker in the corn options pit, moved to the corn futures pit during the outage to execute trades for clients who did not have access to the floor or to other brokers on the floor. Trading was “extremely orderly for the lack of personnel,” he said.
In corn, the most heavily traded market affected by the outage, the December futures contract settled at $5.13 a bushel even though it only traded as high as $5.10 (all figures US$).
The settlement price was “out of whack” because the July contract traded at the same price as the December contract in spread trades in the pit, Quaid said.
That was unusual because the July contract has recently been priced roughly three cents higher than December. July corn on Wednesday settled at $5.08 a bushel, and December corn settled at $5.05-1/2.
A CME spokesman confirmed the December corn contract was settled based on spread trades in the pit.
The pit trades would not have roiled the market as much if Globex was operating because settlement prices are determined by combining electronic and pit trades, brokers said.
The market has previously settled above its daily trading range, although the difference is usually only a fraction of a cent, said Diana Klemme, vice-president of Grain Service Corp. in Atlanta.
“You just shake your head and go, ‘This is the best we could do?'” she said about the settlement price.
Klemme said a customer was unable to enter orders into the market because Chicago floor brokers were “swamped” with business. It likely would have been better for CME to shut open-outcry markets when Globex trading was halted, she added.
CME last week won approval from an Illinois judge for a June 2012 decision to begin considering electronic trades along with pit trades when settling end-of-day grain prices. A group of floor traders had sued the exchange over the change, fearing it signaled the end of the trading floor.
“The floor’s not set up to take all the volume like it used to,” said Mike Hall, a futures broker who works with farmers and country grain elevators. “Thank goodness we got the electronic.”
— Tom Polansek reports on ag commodity markets for Reuters from Chicago. Additional reporting for Reuters by Theopolis Waters in Chicago.