MINNEAPOLIS, Minnesota – In the great hall of the Minneapolis Grain Exchange stand a few dozen long and heavy wooden tables.
At one time more than 100 grain buyers and sellers would cluster around these tables every morning to physically inspect sample trays of wheat and other grains that were arriving by rail in the Twin Cities. Cash deals involving huge amounts of grain would be made right at the tables.
But these days, only a handful of cash grain buyers and sellers meet on their half of the exchange’s trading floor. They can usually tie up all their business by 9:30 a.m.
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At the opposite end of the room there is a lot more action, with floor traders busy watching futures price quotes from exchanges around the world, and leaping into action when they get a client order or see an attractive price appear.
Nine of the exchange’s 15 highest-volume trading days in its history have occurred in the first six months of 2005. A lot of the trading action is now unseen, because the Minneapolis exchange, known as MGEX, allows electronic trading in some of its contracts. The electronic evolution has become more visible because some floor traders are now allowed to bring mini-laptop computers into the trading pits to allow them to run complex pricing programs as they buy and sell futures and options.
Across North America, it’s a time of tempestuous trade in agricultural derivatives markets, but incoming MGEX chief executive officer Mark Bagan thinks the challenges of today are closer to “business as usual” than they are to revolutionary change.
“We’ve been vulnerable to (competition and change) for 100 plus years,” said Bagan, who becomes CEO on July 1. In his first 60 days he plans to speak to exchange staff, traders and others about how this small exchange can make sure it remains relevant in global trade.
“What we have to do is identify why the Minneapolis Grain Exchange is a viable place for people to execute their trade.”
The MGEX has been the world’s price discovery mechanism for hard red spring wheat for decades, much as Chicago is for corn, soybeans and hog bellies and Winnipeg for canola. The Canadian Wheat Board’s producer payment options for wheat rely on MGEX futures prices.
But commodity trading has been shaken up in recent years by technological and regulatory changes, which signal that no physical trading floor can assume it is indispensable.
Electronic trading has made human floor traders unnecessary and an exchange office can be based anywhere, while its marketplaces can be found everywhere that the internet reaches.
Some exchanges have been slow to adapt to the challenge of electronic trading, such as one London, England exchange that collapsed when a German exchange went online and swallowed its business.
Others, such as the Winnipeg Commodity Exchange, have embraced the new technology by abandoning the physical trading floor and pits.
Exchanges in Minneapolis and Chicago have been trying to devise a hybrid approach, involving after-hours electronic trading and some closer connections between live floor traders and the electronic trading networks.
Bagan said many exchange users still value floor traders as their eyes and ears because they can offer opinions on what’s happening in the market.
Floor traders can be a pain, though, when they are slow to communicate. The exchange’s trading firms are trying to shorten the waiting time between a customer placing an order and when they discover what happened.
“They’re trying to make sure customers get fast feedback on fills,” said Bagan.
Options volume is stagnant now, and Bagan said that’s a key area of potential growth. He acknowledged that some market users worry the option volume could suffer from too much electronic intrusion.
Many Canadian users of the Winnipeg exchange have shied away from trading canola options since the electronic switchover.
Bagan thinks the Minneapolis exchange has been moving carefully into the new technologies and still has a firm grip on its commodities markets.
The empty wooden tables of the Minneapolis exchange’s cash market show that a market can fade, but in the same room, the booming volumes in the futures pits show that change can coincide with growth.
