CHICAGO (Reuters) — Open-outcry
traders sprang into action during an electronic trading halt in CME
Group Inc agricultural markets on Tuesday, but a better solution to
the outage would have been to close the pits down too, traders and
investors said a day later.
In chaos following the outage on CME's electronic Globex
platform, some orders sent to open-outcry grain pits went
unfilled because there were not enough traders to handle the
influx. And brokers said trades in the corn pit distorted the
market for a key contract, which settled at a price out of line
with where it traded before and after the outage.
The outage confirmed that open-outcry traders can no longer
shoulder an unexpected flood of orders following a years-long
exodus from the pits, traders and brokers said on Wednesday.
The number of traders, brokers and clerks on CME's cavernous
agricultural trading floors has dwindled during the past decade
due to the rise of faster and more efficient electronic trading,
which now accounts for nearly 95 percent of volume in grain
markets.
"I think the guys on the floor did a fantastic job with a
terrible nightmare situation for them, but they don't have the
numbers," said Ted Seifried, vice president of brokerage Zaner
Group in Chicago.
"We should absolutely halt all trading, floor and electronic, if
the Globex goes down," he added.
CME, which owns the Chicago Board of Trade, Chicago Mercantile
Exchange Group and others, declined to comment on the outage
beyond a statement issued on Tuesday that cited an unidentified
technical issue.
The outage began at 12:38 p.m. CDT (1738 GMT) and was fixed by
2:15 p.m. CDT (1915 GMT), according to CME. By that time, grain
markets had been closed for nearly an hour. Livestock markets,
which trade longer hours, began trading again on Globex at 2:30
p.m. (1930 GMT)
Grain brokers on the floor said they "were besieged with orders
from Globex traders who could not place their orders on the
screens," said Joe Ocrant, president of Chicago-based Oak
Investment Group Ocrant and a livestock trader. "There were not
enough brokers to handle them."
Traders who successfully entered orders during the outage said
they were glad open-outcry trading remained open because it
allowed them to continue to conduct business. Some viewed the
Globex outage as evidence that the floor is still needed in an
electronic age.
P.J. Quaid, a broker in the corn options pit, moved to the corn
futures pit during the outage to execute trades for clients who
did not have access to the floor or to other brokers on the
floor. Trading was "extremely orderly for the lack of
personnel," he said.
CORN CONFUSION
In corn, the most heavily traded market affected by the outage,
the December futures contract settled at $5.13 a bushel even
though it only traded as high as $5.10.
The settlement price was "out of whack" because the July contract
traded at the same price as the December contract in spread
trades in the pit, Quaid said.
That was unusual because the July contract has recently been
priced roughly 3 cents higher than December. July corn on
Wednesday settled at $5.08 a bushel, and December corn settled
at $5.05-1/2.
A CME spokesman confirmed the December corn contract was settled
based on spread trades in the pit.
The pit trades would not have roiled the market as much if
Globex was operating because settlement prices are determined by
combining electronic and pit trades, brokers said.
The market has previously settled above its daily trading range,
although the difference is usually only a fraction of a cent,
said Diana Klemme, vice president of Grain Service Corp in
Atlanta.
"You just shake your head and go, 'This is the best we could
do?'" she said about the settlement price.
Klemme said a customer was unable to enter orders into the
market because Chicago floor brokers were "swamped" with
business. It likely would have been better for CME to shut
open-outcry markets when Globex trading was halted, she added.
CME last week won approval from an Illinois judge for a June
2012 decision to begin considering electronic trades along with
pit trades when settling end-of-day grain prices. A group of
floor traders had sued the exchange over the change, fearing it
signaled the end of the trading floor.
"The floor's not set up to take all the volume like it used to,"
said Mike Hall, a futures broker who works with farmers and
country grain elevators. "Thank goodness we got the electronic."
(Additional reporting by Theopolis Waters in Chicago; editing by
Cynthia Osterman)
