Demise of grain options pits hits traders as prices soar

CHICAGO, Ill. (Reuters) — American grain brokers and analysts on May 5 lamented CME Group Inc.’s decision to permanently end open-outcry options trading at a time when crop prices are surging, saying that pit traders could help navigate volatile markets.

The owner of the Chicago Board of Trade (CBOT) on May 4 said it will never reopen physical trading pits it shut last March due to the COVID-19 pandemic, though a Eurodollar options pit will remain open.

Traders and brokers who work away from CBOT’s grain pits found it easier to execute complicated options transactions with help from the floor. The pits also provided a reliable source for options quotes that are not always available in markets that are solely electronic, traders said.

Such information would be particularly valuable now as corn and soybean futures are climbing to eight-year highs and markets are gyrating on concerns about dwindling global supplies.

“This is the type of market where you need a human being sometimes to make a market for you,” said Brian Splitt, a partner at agricultural research and advisory firm AgMarket.net.

Open-outcry trading was a raucous tradition in which traders jostled and screamed to execute orders in pits packed with people. CME closed most futures pits in 2015 due to the rise of computerized trading, although more than 20 products like Eurodollar and grain options were still traded in pits.

Bids and offers on certain grain options disappeared on the screen when futures prices recently climbed by daily trading limits, making it difficult to get a sense of the market, Splitt said.

“The pit was always dependable,” he said. “When things were really wild and you had limit-up moves, you could call down to the pit and know what the options were trading synthetically.”

Once futures surge by the daily limit, exchange rules prohibit them from trading higher until the next session. Options traders still calculate “synthetic” values based on options demand they see.

“What’s lost, in my mind, is information flow and dialogue,” said one long-time former grain trader on the CBOT floor. “Without local input, the spread between the bid and offer tends to widen.”

A few blocks from the CBOT in downtown Chicago, Cboe Global Markets reopened its options trading floor last summer.

Cboe said in a notice on May 5 that floor brokers play an important role in sourcing liquidity for their customers and executing larger, more complex orders.

In the grain markets, extreme prices and volatile moves would normally have been good business for those on the trading floor. Corn and soybean futures have soared following an increase in demand from China.

“If this pandemic wouldn’t have hit, I have zero doubt that we’d be flourishing,” PJ Quaid, an open-outcry corn options broker for 24 years, said of the CBOT pits.

“It would have been nice to open and trade this.”

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