ICE Futures Canada, known mainly for its canola futures and options, is considering whether to allow pre-arranged trades of large blocks of contracts, a practice already common in some other commodity markets.
Allowing such trades could add to liquidity, with the open interest in ICE’s canola futures currently at a three-year low, but some traders fear they could have an unfair advantage and distort the market.
“We like being open-minded to the marketplace, and in European markets, having some pre-trade communication is not uncommon,” said Brad Vannan, CEO of the Winnipeg-based exchange. “In North America, it’s less common, but the canola market has people who participate from all over the world, so (we’re) stimulating debate to make sure our contract remains relevant and cutting edge.”
ICE Canada is part of Atlanta-based IntercontinentalExchange Inc., which already allows pre-arranged block trades in some of its soft commodities, Vannan said. ICE Canada is the world’s biggest derivatives market for canola, an oilseed also known as rapeseed that produces vegetable oil and meal.
RBC Dominion Securities, a large futures commission merchant, raised the idea with ICE because of interest from some of its commercial clients, including canola importers, exporters and Canadian grain handlers.
The goal would be to allow large block trades in a transparent way so that other traders would not be caught off guard, said Tony Tryhuk, manager of commodity trading for RBC.
“These (block) orders simply aren’t getting filled because we haven’t got a competitive way to broadcast to the marketplace that we have a client interested in doing this,” he said.
Buyers and sellers currently arrange trades solely by posting bids and offers on ICE’s electronic platform. No direct pre-trade communication is allowed.
Large deals used to occur in person back when the ICE Canada exchange, then called the Winnipeg Commodity Exchange (WCE), had an open outcry trading floor, which gave them the capacity to discern interest through verbal communication, Tryhuk said.
The WCE closed its trading floor in 2004, moving to all-electronic trading, before ICE acquired it in 2007.
CME Group, which owns the Chicago Board of Trade and the world’s most traded wheat, corn and soybean derivatives, does not allow pre-arranged block trades in its agricultural markets and has no plans to do so, said spokesman Damon Leavell.
Tryhuk said that’s because the CBOT operates an open outcry pit, which provides a forum where large deals can get done.
Vannan said ICE is discussing the issue with its traders, and has no timeline for a decision. Any change would require the Manitoba Securities Commission’s approval.
Along with canola, ICE Futures Canada offers milling wheat, durum and barley contracts, but they are seldom traded.
— Rod Nickel is a Reuters correspondent based in Winnipeg.