CHICAGO, Ill. – The Chicago Board of Trade said May 4 it is tightening trading order rules, which analysts say will help prepare its benchmark grain trading pits for screen-traded competition.
The CBOT’s grain floor has been under fire for being slow to fill trading orders. The problem will worsen as the all-electronic Eurex, which has already taken on the CBOT in financial trading, is thought to be preparing an assault on the grain futures market.
In a notice on the CBOT website that followed closed-door meetings with agricultural floor brokers and traders last week, the exchange said: “We recognize that our most critical challenge … is ensuring that orders are accepted and executions are confirmed on a timely basis.”
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CBOT customers and clearing members have long complained about unexplained delays in how trading orders for CBOT futures and options for corn, wheat, soybeans and other ag products are filled once phoned to brokers. Poor fills, when market orders are done well off the target price desired, have been the other perennial criticism of the busy CBOT pits.
Under the new rules, orders must be filled in a timely manner and offenders will be fined.
“I personally will be glad to see improvements in service,” said Steven Nail, president of Farmers Grain Terminal Inc. in Greenville, Mississippi, which uses CBOT agricultural futures to hedge.
“We’re one of their customers and the industry is a big customer,” said Nail, who was elected chair of the National Grain and Feed Association in March.
CBOT last tightened agricultural floor trading rules in June 2003.
Eurex and CBOT are already competing in electronic trading of interest rate contracts. But CBOT’s original grain contracts, more than a century old, are still traded almost entirely in open-outcry trading pits, not on screens.
The exchange will respond aggressively to any Eurex challenge of its dominant grain contracts, said CBOT senior vice-president of business development Robert Ray.
CBOT traders and brokers from the grain floor said the exchange’s new rules followed several recent letters and complaints from market participants about delayed order fills.
“A new performance standard was set up and people seemed very responsive to it,” said one longtime CBOT pit broker who attended last week’s meeting. “Those letters were embarrassing … we need to move forward.”
Another floor trader said: “It wasn’t just one letter but they all had a similar tone…. One comment was ‘we put our market orders in at the open and at 3 p.m. they’re still not back.’ “
