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 It seemed like an impossible task: replace the seamless efficiency
of an electronic trading screen with hand signals and guttural
shouts to execute clients' orders to trade corn, wheat or cattle
during the "close", often the busiest time of the day.
But a Reuters analysis of CME trading data on the day of the outage,
April 8, showed they largely succeeded in replacing the machines in
at least some markets, despite the difficulties of suddenly using
floor trading skills that have mostly died out.
In the open-outcry wheat futures pit, for instance, traders executed
a total of 22,606 contracts in the 37 minutes between the start of
the electronic outage and the closing bell at 1:15 p.m. CST (2.15
p.m. EDT), according to the analysis, which is the first to show in
detail how trading activity was affected.
That's about 40 times more than the average floor volume during that
time for the previous nine trading days, and came close to the
average 24,000 contracts traded in the same period on CME's Globex
electronic platform, which was shut down by an unidentified glitch.
The surprisingly strong showing by floor brokers, who for years have
been losing market share to computerized trading, shows that human
traders may still have an important role to play in making markets
for the staples of the U.S. economy — especially when things go
wrong.
"It's a good reminder as to why we still have the pits around," said
Jerrod Kitt, analyst at the Linn Group, a futures brokerage that
still maintains a presence in the CME's agricultural trading pits in
Chicago.
To be sure, various factors, such as contract expiration dates and
the timing of key crop reports, can impact volumes on any given day,
and the data provided by the exchange is only a subset of a much
larger market for agricultural futures traded on the CME. The
exchange operator owns the Chicago Board of Trade, Chicago
Mercantile Exchange and other trading venues.
Still, analysts who reviewed the data said they were impressed, if
not surprised, by the volume handled by floor brokers during the
April 8 outage. On a typical day, electronic trading now accounts
for nearly 95 percent of volume in grain markets on the CME, with
pit traders handling the other 5 percent. The glitch meant that the
pit handled 100 percent, if only briefly.
"I thought the volume, looking at these numbers, was overall very
good, especially for no heads-up," said Terry Reilly, senior
commodity analyst for Futures International.
Graphic link: http://link.reuters.com/fap58v
HOPPING PITS
CME has not commented on the cause of the outage beyond a statement
confirming it experienced a technical issue. "We communicated
frequently with customers as we sought a solution to this technical
issue," a spokesman for CME said.
CME sent out an alert at 12:51 p.m. CDT (1 51 p.m. EDT) that day,
saying it had halted trading in 31 markets ranging from corn to
livestock and weather futures due to technical issues, according to
an email reviewed by Reuters. The outage began at 12:38 p.m. CDT
(1.38 p.m. EDT) and was fixed by 2:15 p.m. CDT (3.15 p.m. EDT),
according to CME.
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"It's almost as if somebody just tripped over a cord or something
seized-up," said Eric Scott Hunsader, CEO of Nanex, a Winnetka,
Illinois-based trading software firm.
At least some trading time was lost as brokers who normally place
orders electronically from offices located stories above the
agricultural floor grabbed their multi-colored trading jackets and
headed to the pits.
Firms such as Futures International, which have maintained their
floor-trading operations, were able to fill most orders during the
outage, while other brokers struggled to execute, market sources
have said.
Some brokers last week questioned whether the pits should remain
open during future outages due to concerns about filling customer
orders.
But the data suggests that, in some markets at least, the traders
who rushed to the floor handled a lot of those orders.
Floor brokers in the corn futures pit executed 44,565 contracts
while electronic trading stopped. That's about three-fourths of the
average electronic trading volume during that time on the nine
trading days prior to the outage and more than seventeen times the
average trading pit volume.
Still, lean hog and live cattle futures saw only modestly elevated
floor activity that suggested the trading pits did not fully
compensate for the loss of electronic volume.
Electronic migration has hit futures markets especially hard because
traders can execute futures trades faster and more efficiently on
the screen. It is more difficult to execute options trades
electronically, keeping those pits busy. Some options brokers
crossed over to futures pits during the CME outage, helping futures
colleagues meet the surge in demand.
"We filled in admirably," said Joe Fasano, a futures broker in the
corn pit.
(Reporting by Cezary Podkul in New York and Tom Plansek in Chicago;
editing by Martin Howell)
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