CME to Cut Livestock Hours to Reduce Volatility

By Kelsey Gee 

Exchange operator CME Group Inc. said it plans to slash trading hours for livestock futures in response to concerns about volatility in the benchmark agricultural contracts.

CME on Wednesday said the changes, which are scheduled to begin on Feb. 29, reduce trading in the early morning and late afternoon in the U.S. when volumes tend to be lower. CME developed the plan, which is subject to a review by the U.S. Commodity Futures Trading Commission, after consulting livestock traders, producers and other market participants, the company said.

Trading for electronic futures and options for livestock currently starts at 9 a.m. ET every weekday except Monday, when it begins at 10:05 a.m., and extends to 5 p.m. every day except Friday, when it halts at 2:55 p.m. Under CME's plan, trading would be shortened to just over 4 1/2 hours each day, from 9:30 a.m. to 2:05 p.m. Monday through Friday.

CME maintains the main U.S. market for trading contracts reflecting anticipated prices for cattle and hogs. It said in its announcement that 87% of trading typically occurs during the proposed hours. Some traders have complained that relatively scant trading earlier and later in the day can at times produce wide swings in prices.

"Nothing is more important to us than the integrity of our markets, which help farmers and ranchers to discover prices and transfer risk," said Tim Andriesen, managing director of agricultural products for the exchange.

CME said it also will form a working group with the National Cattlemen's Beef Association, an industry group that represents ranchers, feed-yard operators, and meat processors, to discuss other possible changes to the cattle markets.

The association in January sent the exchange a letter requesting closer scrutiny of trading behavior in livestock futures. It raised concerns about the impact on the markets from high-frequency trading, which uses algorithms to drive electronic-trading strategies.

The letter said association members "question their use of the cattle contracts because the volatility has made them a tool which is more of a liability than a benefit."

Write to Kelsey Gee at [e-mail]

(END) Dow Jones Newswires

February 10, 2016 12:36 ET (17:36 GMT)

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