CBOT to Launch Daytime e-trading Aug. 1
Ags side-by-side will boost access to CBOT products and create more opportunities for entire market.
John Otte
Published: Jul 21, 2006
On Aug. 1 the Chicago Board of Trade will launch daytime trading of agricultural futures on e-cbot. E-trading during business hours is a next step following overnight trading, which began about 10 years ago.
"We'll offer customers the choice between two trading venues, e-trading and traditional pit trading, side-by-side," says Charles Carey, CBOT chairman. "We have an obligation to our shareholders and our customers to provide the best trading opportunities possible."
Bernard Dan, CBOT president & CEO, believes the trading community will rapidly adapt to create greater opportunities for users.
"We see a single pool of liquidity developing between pit and screen," he explains. "We want to keep the spread between our bid and our ask, which historically has been narrow, squeaky tight."
The narrower that spread, the better order fills market participants get on both sides of the transaction.
Traders strive to capture efficiencies
Charles F. Whitman, CEO, Infinium Capital Management, sees e-cbot opening a whole new set of opportunities to trade spreads on short time frames that used to only be available to traders on the floor.
Infinium currently trades hundreds of commodities on 16 exchanges.
"We're adding two traders and a couple computers to do e-cbot," he says. "To achieve on the trading floor what we intend to do on e-cbot we'd have to add eight traders and seven to 12 clerks to support the operation. Holding down costs improves efficiency for us and our customers."
Will e-trade eliminate pit trade?
Bernie Dan thinks that's not likely. He has a host of reasons.
One is order size. Large traders may be reluctant to expose a big order book with a single e-stroke.
Two, complexity of some trades, particularly spreads, make them difficult to execute electronically.
Third, some traders prefer the color and feel of trading on the floor.
Fourth, other traders do not want to take the risk of making an e-trade mistake.
"We want every trade that comes to the CBOT to have the largest number of traders possible to take the opposite side," says Dan. "The only way to do that is to offer floor and screen in tandem."
Attracting broader market participation
Dan sees e-cbot appealing to traders who only trade electronically. The rising acceptance of commodities as an asset class has attracted billions of dollars into commodities and to diversify traditional portfolios. Many fund managers prefer electronic trading.
"Growing interest in alternative fuels is stimulating more interest in agricultural markets," says Dan. "We're seeing huge shifts in both production and use of agricultural products. One example is the huge increase in China's production and use of soybeans. Such shifts impact how markets trade. We see e-cbot trading at another tool market participants can use to manage both prices and price risk."
The CBOT is co-operating with other exchanges to facilitate cross trading of commodities on different exchanges. For example, e-cbot will make it easy for a trader to trade Chicago wheat, Kansas City wheat and Minneapolis wheat simultaneously. The new venue opens a whole host of spread opportunities that are difficult to execute under pit trading.
Training and tools for floor traders
"We've been proactive in providing the best possible tools to make e-cbot available to customers," says Bryan Durkin, CBOT executive vice president and chief operating officer. "
A short list includes:
- Filling 190 requests for additional hand held devices to be used on the trading floor.
- Filling 200 new requests for headsets to enter orders by both venues, pit and screen.
- Rolling out 40 new plasma screens around the pit.
- Adding 30 more booths around Ag floor to support floor traders.
"All new users will have undergone training sessions in e-trading before Aug. 1," he says.
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