The Winnipeg Commodity Exchange has grown bigger and perhaps grown up.
Its mainstay canola futures contract volume and open interest are booming and it is also no longer a mostly commercial exchange.
Speculators and commodity investors make up more than half of the exchange’s business, something that most derivative experts say is essential to make a market self-sustaining.
“It’s a good balance in the market,” said WCE vice-president Will Hill. A couple of years ago, the majority of the exchange’s trading came from commercial users such as grain companies and food processors. Liquidity providers, who trade contracts not to hedge but to speculate, provided less business.
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But many liquidity providers, known as locals, left the market after the exchange went all-electronic, so those volumes suffered and made the exchange’s business even more commercial-dependent.
But much of the local traffic has come back, including some from new sources such as international trading companies. Today, about 45 percent of the exchange’s business comes from participants, who are largely commercial crop users hedging their positions. Liquidity providers now make up 23.6 percent of the volume, and non-participants provide 31.4 percent.
“That’s about where you want to be,” said Hill.
The non-participant volume includes interest from various commodity investors who take longer term positions. The exchange’s three commodities of canola, barley and feed wheat now appear in the UBS commodities index and in Jim Rogers’ index, so “people replicating those indexes are using our contracts,” said Hill.
“That’s where the big growth is coming.”
Volume overall is up almost 40 percent this year to date and open interest is up 21 percent.
