http://www.reuters.com/article/2015/07/23/cmegroup-markets-meeting-idUSL1N1031ZH20150723?irpc=932 CME Group is looking into complaints by grain brokers who say the exchange's trading platform cannot accommodate some popular spread trades involving soybean futures after the July 6 close-down of century-old futures trading pits, traders said on Thursday. "There's a South American soy processor who wants to put on 1,500 crush spreads but hasn't been able to get it legged in," said Peter Kelly, a veteran soyoil broker. "It's the kind of trade that was easy to do in the pit. But there's not a market for it on the screen." Traders are seeking a rule change or a trading platform that allows for hybrid spreads but are unsure if CME will comply. CME held an emergency meeting on the matter on Wednesday. Commenting on that meeting, CME spokesman Chris Grams said: "We regularly talk with our customers about ways to enhance our markets." Soybean processors routinely establish a "crush spread" by buying soybean contracts and selling soymeal and oil contracts to lock in their profit margin. Before the futures pits closed, traders routinely took on the risk by offering the three-legged spread at one quoted price, in dollars and cents per bushel. But CME rules are running afoul of customer reality. CME's electronic matching software only allows for a standard crush spread at the ratio of 10 soybean contracts to 11 soymeal and 9 soyoil. But South American processors, for example, like to buy 7 soybean futures and sell 11 meal and 11 soyoil to hedge what is a higher oil yield than at U.S. crushers, traders said. "Anything out of the 9, 10, 11 ratio - they can't handle," said a second soy broker. "It's not something that we'll worry about and have a solution for next month," said a third broker whose customer needs to put on the usual hybrid crush spread by Wednesday. "This has to be done by next Wednesday before the August goes into delivery and there are no price limits." "I just need a platform in place to get the trade done," he added. CME closed its open-outcry futures pits despite resistance from many floor brokers and traders who argued the move could hurt end-users of the giant Treasury and Eurodollar markets who use multi-legged spreads similar to the soy crushers. "Unless you're Goldman Sachs, Citadel, a big fund that trades big volume, CME doesn't care," said Kelly. (Reporting by Christine Stebbins; Editing by David Gregorio)
The complaints is not what really matters. The company is expected to announce next quarter earnings on July 30, at consensus estimate of $0.91. It would affect their stocks much more.
Well, consider the source ( brokers with a strong pit presence ). The simple fact of the matter is that anything you could leg in the pits you can certainly leg on the screen. And I have an extensive background doing both. You can use futures legging automation as well for that matter. Having said that, allowing for hybrid spreads in the exchange supported format would be a DANDY idea !
Bone I think their contention is that in theory anything is possible on the screen but in practice its not happening as planned. Aside from the consider the source angle this wouldn't be the first occurrence of higher ups making a decision without consulting the on the ground types on potential impacts. Happens all the time in every business.
Point duly noted. What's more, the CME's Ag Product Manager should hang for this. And again, I would be thrilled about hybrid spreads in the exchange supported format. I guess that I am really leery of the statement "There's a South American soy processor who wants to put on 1,500 crush spreads but hasn't been able to get it legged in". The reason I say that is if it were my back against the wall regarding that kind of order, I would do the standard +10-11-9 Soy Crush Spread and then use the AutoSpreader to get out of the 3-2 Soybean/Bean Oil tail and to accomplish the customer's desired spread ratio. If a customer needs to do 1,500 and he won't give the broker's desk a few tics DRT in order to accomplish his hedging goal then the customer is being foolish in terms of risk. Just Saying...
The CME is working on getting certain (additional) spread functionality into GLOBEX, at first it looks to be “high-volume, traditional pit” type spreads such as the treasury futures tail spreads that were the uproar a few months ago. This is slated to become active August 16 (for trade date August 17) electronically. If you have a platform that supports two-way GLOBEX RFQ you can create (or submit a market) for many different types of FOP (and maybe future?) combinations outside of the standards. Being with IB currently, my wish is they add all the frequently used “standard” native spread types before going off and trying to build TOS-like analysis stuff. My dream is they implement two-way GLOBEX RFQ, but I can understand why they won’t – too much hassle for the few traders who would (or could) use it.
Well, there are some very advanced automated spreading platforms out there ( RTS, etc. ). Granted, they are predominantly used by speculators and proprietary firms, but every FCM customer desk that I know of in Chicago has a TT Pro license which includes AutoSpreader. I simply can't buy into these broker's argument in the sense that what I described above is what every local independent trader ( spread market maker ) is going to do when asked by a floor broker to make a market on a "hybrid" ratio spread. He's going to bid and offer wide of the large paper orders working the standard crush spread and then lay off the tail risk ASAP. In essence, the worse the market maker wants to do is scratch the trade.
I am currently evaluating CME Direct with CME Core and CME Clearport Access. It seems to have 2-way RFQ allowing you to make 2 sided markets. Frankly, I am a little bit lost right now because this program doesn't work with my methods and workflow (Punt with an ungodly amount of leverage and hope the market opens in your direction.) But seriously, I wouldn't mind getting input from you guys. I had started a private thread for this because I didn't want any possible "buzz" crowding the CME lines and possibly derailing my adoption. The system is very elementary and very much lacking what a retail trader needs. But for a guy who knows what he is doing, it may have some value. Please PM me. CME moves glacially but I have all the time in world and willing to share intel.