CBOT To Change Settlement Rules On Agriculture Futures

The first two contract months other than the lead contract months in corn and the soy complex will settle to spread relationships established in the pit, while the remaining contract months will settle based on spread relationships established on the electronic system at 1:15 p.m. CST, according to the exchange. Deferred month contracts beyond the first two contract months in corn and soy complex futures settlements are currently determined by spread relationships in the trading pit.

“Electronic trade has moved to the forefront and the pit has moved to the back of the pack,” said Don Roose, president of U.S. Commodities, an advisory and brokerage firm in West Des Moines, Iowa. “It’s a progression of the direction we are headed—inch by inch—with electronic options trading becoming much more efficient.”

The relevance of open outcry trading has already faded in the face of electronic trading, said Joe Victor, vice president of marketing for Allendale. It’s not hard to envision a day when all corn and soy contracts will eventually settle based on electronic activity, he said.

Electronic futures volume has overtaken open outcry volume in recent years as market participants have flocked to the screen for easy, efficient execution of trades. Floor traders who lament the reduced role of pit activity miss being able to identify players with pending trades, he said.

“The move makes sense,” a CBOT commission house broker said. “With all of the over-the-counter products that are based on deferred spreads, it didn’t make sense to base those settlements on pit trade, where the volume is low in the back months.”

For the settlement of the first three contract months in corn and the soy complex, the pit committee, along with exchange staff, will settle the lead month at the price that in its estimation represents the volume weighted price of the pit volume traded during the closing period from 1:14 p.m. to 1:15 p.m. CST. The first two contract months other than the lead month will settle based on spread prices versus the lead
month that are established in the pit during the closing period.

The lead months in soyoil and soymeal will close from 1:14 p.m. to 1:15 p.m., and the spread prices used to imply settlements of the first two contract months other than the lead months will be based on spread prices established in the pit during the closing period. Contract months other than the lead month will continue to close in the pit on a call rotation that begins after 1:15 p.m. CST, but this will not have an impact on settlement prices, CME said in the advisory note.

Exchange staff in the Globex control center will settle the remaining contract months for each product in chronological order based upon the midpoint of the bid/offer in the relevant spreads on the electronic system at 1:15 p.m.

Source: CME Group