Two farm groups want regulators to stop the Winnipeg Commodity Exchange from switching to electronic trading because they think it could kill the exchange.
But in the same week that the Manitoba Canola Growers Association and Keystone Agricultural Producers stated their opposition, two other North American agricultural exchanges announced they planned to follow Winnipeg’s path into electronic trading.
The issue being debated is whether electronic trading will increase trade and therefore keep the three small exchanges alive.
For analyst Brenda Tjaden Lepp, who is advising the canola growers and Keystone, there are too many unanswered questions to permit the scrapping of the open outcry system.
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“If an electronic market doesn’t work and we lose price discovery, and we lose a risk management tool for farmers, that’s a problem for farmers,” said Tjaden Lepp.
The two farm groups have asked the Manitoba Securities Commission to prevent the WCE from switching to electronic trading in mid-December.
Exchange chief executive officer Mike Gagne, who has championed the switch, is perplexed by the attacks.
He noted the farmers are worried about the problem that electronic trading is intended to alleviate.
“The whole idea here is not to do something that will be detrimental to the exchange,” said Gagne.
“Our view is that this will increase volumes and be good for anyone who uses this market for risk management. It’s a positive move.”
Last week, the Kansas City Board of Trade and the Minneapolis Grain Exchange announced they would begin partially listing some of their contracts on the Chicago Board of Trade’s electronic trading platform. The two exchanges will retain open outcry trading for their main contracts during the day, but Kansas City will allow overnight electronic trading of its wheat contract. Minneapolis will make its index contracts available on the Chicago platform.
The Winnipeg exchange is also planning to use the CBOT platform, but unlike the other exchanges, it is planning to scrap open outcry trading. The exchange said its trading volumes are too small to support both systems.
Gagne said the Chicago platform will become even more valuable for Winnipeg now that the Minneapolis and Kansas City contracts will also be on it.
“The number of people who are connected to this system and the number of people who trade commodities is fantastic,” said Gagne.
“We’re going to be on the same trading screen for everybody who subscribes to the Chicago Board of Trade. The people who have a screen to watch their markets and our markets and Chicago’s markets are all the same people.”
The Chicago platform will become the common marketplace for agricultural commodity trade in North America, Gagne predicted.
Tjaden Lepp said electronic trading will be no panacea for existing problems with Winnipeg’s contracts and may worsen them.
Trading volumes have declined since the electronic trading announcement and a botched switch to electronic trading could kill the canola contract.
With the open outcry trading floor scrapped, the Winnipeg exchange couldn’t recover.
That’s KAP president David Rolfe’s biggest concern.
“We need the exchange,” said Rolfe.
“Producers use hedging. It has a major impact on what we as producers can do and our ability to gain that extra dollar and hedge our crops.”
The Winnipeg exchange has announced that it hopes to switch to electronic trading in mid-December. It has not yet made its final application to the Manitoba Securities Commission, which must approve the conversion.
