Electronic Trading Now 'Round the Clock in Ags, Energy

By Kristina Zurla Landgraf

August 2006

Take a tour of the financial and agricultural trading floors at the 158-year old Chicago Board of Trade, and you can see the future. The once bustling and boisterous financial complex, which includes Treasury, Dow Jones Industrial Average and Federal Funds futures, is now a sparsely populated chasm with row upon row of empty desks. The only place traders are clustered nose-to-nose is in one of the last products to fully migrate to the screen—Treasury note options. The biggest irony? In 1997, the CBOT completed renovation of a new, large, and modern financial trading floor—able to comfortably fit a jumbo jet. Then in 1998, side-by-side electronic trading was instituted in the exchange's financial markets, and rather quickly made the new floor obsolete. Today, open outcry still dominates the CBOT's agricultural markets, where you can witness the old tradition of physical human trading by gesticulations and shouts still at work. But you may want to go see it soon—because open-outcry trading, and the brashness, drama and color of the floor-trading community, may be fading fast in the agricultural markets too.

On August 1, 2006, the CBOT decided to allow agricultural products to trade on its e-cbot electronic platform alongside the pit-traded contracts, or "side by side." For the first time, you can now trade agricultural products such as soybeans or corn on the screen, night or day.

The exchange reported that on the first full day of side-by-side trading of its benchmark agricultural futures contracts, 436,154 contracts traded. Of that total, 358,054 contracts traded via open outcry and 61,032 contracts traded electronically. On August 14, 2006, electronic trading of agricultural futures had jumped up to more than 154,000 contracts. While electronic trading hasn't overtaken open outcry at this early stage, stay tuned.

"The volume totals we witnessed in open auction as well as on the screen during the first day of side-by-side trading reflect the market's support for our initiative to create additional trading opportunities. The strong volume in the ag futures complex is also indicative of our market participants leveraging the trading expertise found in our open auction markets," said CBOT President and CEO Bernard W. Dan, in a statement.

The CBOT said it has expanded the electronic trading hours of its agricultural futures contracts to provide greater access and increase trading opportunities for new and existing CBOT customers worldwide. Previously, CBOT's agricultural futures contracts traded electronically after hours, which enabled the exchange to expand the distribution of its agricultural products globally, particularly in Asia and Europe.

Electronic trading for the CBOT's agricultural futures complex, which includes corn, wheat, soybeans, soybean oil, soybean meal, rough rice, oats and South American soybean contracts, runs from 9:30 a.m. to 1:15 p.m. (Chicago Time) and resumes from 6:30 p.m. to 6:00 a.m.

Aside from differing ticker symbols, the contract specifications for the electronic agricultural products are the same as those traded on the open-auction platform. The contracts are fully fungible regardless of trading platform. To learn more about this initiative, please visit the CBOT Web site, www.cbot.com.

NYMEX Products Go Electronic Day and Night Too

Meanwhile headed east, the New York Mercantile Exchange, not so long ago a die-hard supporter of open outry, has not only shut down its London floor-based hub after less than two years of operations, it has gone electronic around the clock, too. On June 12, 2006, NYMEX launched financially settled, standard-sized and miNY™ energy futures contracts for trading on the CME's Globex® electronic trading platform. Access to electronic trading of NYMEX products is available virtually 24 hours a day on CME Globex.

NYMEX also announced it will also offer its physically delivered energy futures contracts on the CME Globex electronic trading platform during its regular open-outcry trading hours, beginning on September 4, 2006, for the trade date of September 5, 2006. The contracts will trade side by side in conjunction with NYMEX trading floor hours, and they will be fungible with the floor-traded NYMEX energy contracts.

The contracts include the NYMEX crude oil (CL), natural gas (NG), heating oil (HO) and gasoline (HU, RB) futures contracts. The contracts on CME Globex will be listed for the full curve, or all months corresponding with the underlying full-sized futures contract and will be available for trading from 5:00 p.m. CT Sundays through 4:15 p.m. CT Fridays, with a 45-minute break each day between 4:15 p.m. and 5:00 p.m. CT. For more information, visit www.nymexoncmeglobex.com.

Now, the New York Board of Trade seems to be the last bastion of pure open-outcry trading left. While volume at the exchange is still growing from last year (up 26 percent through July), one doesn't have to be a futures expert to be able to see where the future seems headed. Electronic trading is synonymous with greater access, transparency, and speed. There has been media speculation that NYBOT could list its products on the e-cbot platform, or that it might be contemplating a deal with the all-electronic IntercontinentalExchange.

For the exchanges, electronic trading has brought in more participants of all shapes and sizes from around the globe, and that's equaled greater volume and liquidity. That means for you the individual trader, the spread of electronic trading to more markets in more time zones is, as Martha Stewart would say, "a good thing."

If you aren't yet a Lind-Waldock client and like to trade the electronic NYMEX mini-sized energy futures contracts, find out how you can get 20 commission-free contract sides.

Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

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