In an announcement earlier this week, the CME Group announced its intention to “…transition open outcry trading of Kansas City Board of Trade (KCBT) hard red winter (HRW) wheat futures and options to its Chicago trading floor beginning Monday, July 1, 2013, pending CFTC review.”
Per a statement from the CME:
- The last day of open outcry trading on the KCBT floor will be June 28.
- CME Group will operate an electronic trading center in the former KCBT floor space until the end of September, providing a place for Kansas City-based traders to execute trades on CME Globex.
This isn’t a big surprise. When the announcement came last year that the CME would buy the Kansas City Board of Trade, the CME said it would leave it open for 6 months and evaluate. I was in Kansas City with an Egyptian trade team last September, which was the first day in the history of the exchange that there wasn’t one trade executed in the pit. Certainly, the writing was on the wall for open outcry in KC.
There are two things we should remember.
The KCBT Contract Committee will be in place for at least 3 years. This is the committee that has representatives from physical grain trade and has helped make rational decisions with users of the contract as well as farmers. This is an important component in the future direction of this contract and I hope that they will keep it in place and seek input from physical users of the contract and farmers.
Remember the Cash Basis Committe. This is the committee that meets daily on the floor of the KCBT and reports most recent trades of spot wheat, bids, and gulf premiums. This is a transparent way of letting all participants know where the daily market is for localized supply and demand for hard red winter wheat. I look forward to seeing the plan for that reporting mechanism to remain in place.
On the upside, being located in Chicago may increase trading liquidity and volume; time will tell.
For a traditionalist, this change may be disappointing but the reality is it is an expected end of an era. As the location where the HRW wheat contract is traded moves further from the areas that grow it, I hope that future intentions of this contract do not also get further away from those who grow it…