The nation’s two leading grain organizations on May 10 urged the Commodity Futures Trading Commission (CFTC) to institute a 30-day public comment period to provide time to assess issues related to announced plans by the InterContinental Exchange (ICE) and CME Group to launch expanded electronic trading hours this month for grain and oilseed futures and options contracts.
In a joint letter to the CFTC, the National Grain and Feed Association (NGFA) and North American Export Grain Association (NAEGA) cited inadequate advance consideration with stakeholders of important ancillary issues raised by the two exchanges’ plans to expand electronic trading to 22 hours per day as justification for CFTC intervention. If the CFTC finds it is not feasible to institute a public comment period, the two groups urged the agency to approach both ICE and the CME Group to encourage them to self-initiate a delay in their respective scheduled implementation dates.
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 NGFA and NAEGA stressed that they did not 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 the NGFA and NAEGA said that as currently structured, both ICE’s plan to launch 22-hour electronic trading of new grain and oilseed contracts starting May 14 and the CME Group’s plan to expand its existing electronic trading to 22 hours effective May 20 “raise 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.
“Neither the ICE contracts nor the CME Group’s plan to expand electronic trading hours were vetted properly with appropriate market participants” prior to their respective announcements, the NGFA and NAEGA said. “It is safe to say there are significant and substantive opposing views as to whether these plans, as currently constituted, are of net benefit” to those using the futures markets for hedging and risk-management.
The NGFA and NAEGA specifically cited the following concerns surrounding the expansion of electronic trading that warrant further evaluation:
- Allowing electronic trading to be open during the release of key statistical and economic reports issued by the U.S. Department of Agriculture. Currently, electronic and open-outcry trading does not begin until 9:30 a.m. Central time, two hours after the release of crop production, crop progress, grain stocks, planted acreage and other potentially market-moving USDA reports.
The NGFA and NAEGA said they believe it would be “prudent” that such reports be released while futures and options markets – including electronic trading – are closed, or that there be a “break” in trading activity to give market participants an opportunity 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 NGFA and NAEGA said. “Further, there is currently unequal access to USDA report data because of different Internet connection speeds and analysis capabilities.”