When we announced earlier this month that we were reducing livestock trading hours, the response we received from market participants was overwhelmingly positive. A Bloomberg headline read “CME Cuts Livestock Hours as Traders Welcome More Sleep.” More sleep is certainly a welcome consequence for some as we transition today from round-the-clock electronic trading to a schedule aimed at traditional U.S. business hours, but it’s far from the only benefit to the new trading schedule.
When we look at hours we’re always trying to find the right balance between access for market participants and liquidity. We want to provide hedgers the ability to offset risk from their physical business. We recognize that physical markets don’t conform to our hours and hedgers want to offset risk. On the other hand, we can’t be open 24/7 and there needs to be a depth of participation to take the risk from the hedger. Our goal is to find hours which meet both groups’ needs. We think with the new hours that began at 9:05 CT today, our live cattle, feeder cattle and lean hog markets are as deep and liquid as they have ever been.
We don’t make changes like this on a whim. After hearing the concerns of a few market participants, we surveyed a broad cross-section of customers, including producers, commercial customers, traders and other industry participants. The feedback was consistent. Trading in livestock markets would be far more convenient, and far more liquid if hours were reduced.
Livestock markets are different than most other asset classes. Within the universe of traders or people with an interest in the market, there is a diverse group of people with different needs. A cattle rancher in Oklahoma, for example, may have very different concerns than a hog operator in North Carolina. So as with any survey of customers, we received some varying responses. Some suggested keeping evening hours available, others suggested limited evening hours. We also had to consider regional concerns like opening too early for cattle producers in the Mountain time zone, or too late for hog producers in the Eastern time zone.
We weighed all the responses and found that, on the whole, customers agreed that a reduced schedule focused on daytime hours would best meet their needs. We determined that 9:05 a.m. to 4 p.m. CT Monday; 8 a.m.- 4 p.m. Tuesday through Thursday; and 8 a.m. – 1:55 p.m. Friday made the most sense since 98 percent of contracts are traded during these hours under the round-the-clock schedule.
We take feedback from all market participants, but when hedgers speak with a consistent voice, that carries particular importance. They are the core of our market, and the reason these contracts exist in the first place.
Our goal above all is to continue to ensure market integrity. With issues like trading hours, that involve carefully weighing the access/liquidity balance. With a market like corn, a global contract where people all over the world need access at all hours, that balance is weighted differently. Livestock contracts are more regional. Nearly all of our hedging customers are located within the United States. Therefore, we wanted to ensure liquidity in place of access and keep deep, liquid markets available to those who need it most.
We shifted to round-the-clock electronic livestock markets in 2007 as a way to enable the fullest access to our markets given the increase in electronic trading available across agricultural markets. Though this provided greater access and a liquid market, there were sometimes points during the evening hours where liquidity dipped. With agricultural markets, there is a finite supply of commercial hedging. The goal of today’s change is to bring that together in a window where liquidity is sustained.