CBoT brings on electronic AG's

Discussion in 'Trading' started by local_crusher, Apr 26, 2006.

  1. THANK GOD, This is great news!!! I hate trading through the pit. I will definitely put in more volume in the ag contracts now.
  2. Pabst


    The CME has traded Live Cattle on Globex during RTH for about a year. The volume on the screen has been VERY light. I suspect grains will also remain a pit traded product for the foreseeable future.
  3. I think comparing any Merc Ag to CBoT grains is like apples & oranges.

    The grains are _far_ more liquid, the livestocks are a niche product after all. The public interest in these tends to zero .

    Moreover, as the BOT needs to make lotsa money and the grains are their 2nd flagship, I see a good chance for the volume to shift over in the first week(s).
  4. Yea it sounds good but they are witing until August. The old boys squeezed one last season out of it.
  5. Currently, if a small order (futures or options) comes into the ring it automatically gets placed on an internal electronic platform. Something like anything < 20 lots. So, sounds like they might be opening up that system to external users (through their e-CBOT platform or whatever). Probably plenty of liquidity for small traders/hedgies.
  6. Newly public CBOT and the other exchanges are under pressure to increase profits any way they can. One of the low hanging fruit ways to do this is to finally phase out floor trading once and for all. Thank God.
  7. Pabst


    I was a member of both exchanges for many years, in fact I was displaced in the Bond pit by the transition to the screen, so I know the lay of the land. Certainly grains do better volume than Meats, although LC trades a respectable 20k-35k a day. There's several major factors that will prohibit the move of grains/energy/meats to the screen.

    1. Spreading. Unlike Index futures, currencies and Treasuries, much volume in commodities takes place in deferred contract months. That's the same reason open outcry dominates as an options market venue. The screen is not completely adaptable to anything beyond plain vanilla transactions. Try pricing a butterfly spread electronically without giving up multiple edges.

    2. Commercials. Unlike financial futures that have highly liquid arbitraged cash markets, price discovery in commodities is completely predicated upon futures. Therefore a trader on Cargill's grain desk is far less sensitive to slippage in Dec Corn that a JPM basis trader is to the bid disappearing in the ten year contract. Not to mention, where it makes little difference to me who the "featured players" may be in the indices, it matters greatly to grain traders. They want to know immediately if that was a fund selling or a commercial hedger.

    3. Position limits. You can only carry 600 contracts in grains. Because of the inherent limits in supply, Corn or Beans will never be the type of instruments that can trade 500k contracts a day. Thus the CBOT doesn't see expanded access to grains as a potential cash-cow.

    I have no doubt that some day the trading floors will disappear. I am doubtful though that in some markets, the changes will occur in the near future.
  8. Point 1 is cruicial for sure - a lot will depend on if there is a reasonable software solution.

    Anyone remember the Eurodollars switch over ?
    Nothing happened before CME added spreading features, packs & bundles to the Globex frontend.

    Anything else is subordinate IMO - for the futures, not options.
    The advantages of a transparent market would prevail, I'd say.
  9. but its nice to have both available.
    #10     Apr 26, 2006