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UPDATE 1-CME Group to allow talks before some grain options trades
October 7, 2013 / 10:02 PM / 4 years ago

UPDATE 1-CME Group to allow talks before some grain options trades

* Overnight trade to permit “pre-execution communications”

* European demand drives change, CME says

* Prearranged trading remains prohibited

By Tom Polansek

CHICAGO, Oct 7 (Reuters) - CME Group Inc on Monday said it will begin allowing customers to discuss the details of electronic grain and oilseed options trades during certain times before the orders are executed.

CME, the largest U.S. futures market operator, said it will permit “pre-execution communications” in Chicago Board of Trade and Kansas City Board of Trade grain and oilseed options from 7 p.m. CDT (0000 GMT) to 7:45 a.m. CDT (1245 GMT) each business day starting on Nov. 11. The change must be approved by U.S. regulators.

It allows “communications between market participants for the purpose of discerning interest in the execution of a transaction prior to the exposure of the order to the market,” CME said in a notice.

“Any communication that involves discussion of the size, side of market or price of an order, or a potentially forthcoming order, constitutes a pre-execution communication,” the notice said.

CME prohibits such communications in electronic grain and oilseed options during other trading hours and at all times in electronic grain and oilseed futures. They also are banned in connection with transactions executed in open-outcry grain and oilseed pits.

CME is making the change in overnight electronic options because of demand from European customers, company spokesman Damon Leavell said. Including electronic and pit trading, CME “has deep and liquid options markets during the day and we don’t believe this is necessary” during other trading hours, he said.

Even with the communications, traders are not allowed to prearrange or non-competitively execute transactions, Leavell said. Participants can discuss trades that they want to execute but the actual execution of orders is not guaranteed, he said.

Still, the change could give overnight electronic traders an advantage over pit traders, said P.J. Quaid, an open-outcry corn options trader.

“I don’t understand how they can make the rules different for one venue and give them such an upper hand for the way they do business,” he said.

CME allows pre-execution communications in other markets it owns, including electronically traded products at NYMEX and Comex and in electronically traded CBOT interest rate products.

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