OABA Joins NGFA and NAEGA in Urging CFTC to Solicit Public Comments on Issues Raised by Plan to Expand Electronic Futures Trading

Later this month, the InterContinental Exchange (ICE) and CME Group are planning to launch an expanded 22-hour-per-day electronic trading for grain and oilseed futures and options contracts. The National Grain and Feed Association (NGFA) and North American Export Grain Association (NAEGA) have submitted a letter to the Commodity Futures Trading Commission (CFTC) urging it to institute a 30-day public comment period to provide additional time to assess issues associated with the expanded trading.

The Ohio AgriBusiness Association (OABA) is also taking action on behalf of its members. OABA President and CEO Chris Henney has engaged the OABA Board of Directors and the Grain Committee to determine impacts this change could have on members in the grain business. Through these conversations, OABA has determined it’s best for our members to join NGFA and NAEGA in requesting a 30-day public comment period, and has also submitted a letter to the CFTC (click here to view the letter).

Concerns and thoughts cited by NGFA, NAEGA and OABA include:

• 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. 
• 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 organizations do 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. 
• 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.” 
• The impact on back-office personnel, as well as computer and accounting systems used to reconcile trading activity, given different closing times for open-outcry (1:15 p.m. Central for CME Group’s CBOT contracts) and electronic trading (4 p.m. Central for CBOT contracts and 5 p.m. Central for ICE). The current 1:15 p.m. Central time closing for both open-outcry and electronic trading for CBOT grain and oilseed contracts provides sufficient time to allow firms to close out and reconcile their trading activities and perform required accounting and other back-office functions before electronic trading reopens at 6 p.m. “If electronic trading remains open through the late afternoon or early evening, firms – especially those operating in the Eastern time zone – will be faced with putting on extra personnel and/or paying overtime to work into the evening hours.” The NGFA and NAEGA also cited the difficulty confronting firms when trying to assess – in an extremely short time period – the types of software and systems changes that will be needed to accommodate expanded electronic trading hours and different closing times for open-outcry and electronic trading.

The two organizations also cited such practical concerns as: 

• How cash grain purchasers will price bids to producers when open-outcry trading is closed and settlement prices have been established, while electronic trading remains open.
• The mechanics of how margin requirements will be determined by exchange clearinghouses given two different closing times – one for open-outcry and the other for electronic trading.
• Potential discrepancies between hedgers’ cash market positions and their brokerage statements at the end of the trading day.

For more information about the plans regarding the expanded hours, click here.