After more than 125 years, open-outcry trade in wheat futures at the Minneapolis Grain Exchange will cease on Dec. 19 when the exchange goes fully electronic.
The exchange’s board of directors unanimously approved the move, pending approval by ownership in a ballot this month.
Hard red spring wheat futures, launched in Minneapolis in 1883, are traded both electronically on the CME Group’s Globex platform and in the open-outcry pit during the day session.
The exchange began side-by-side screen and pit trade in August 2006, along with the Chicago Board of Trade and the Kansas City Board of Trade.
Since then, the proportion of grain futures volume traded electronically at all three exchanges has risen sharply, with screen-based trade representing roughly 80 per cent of the current volume in Minneapolis.
“This migration is something that everyone has seen coming. It’s happening around the world,” MGE president and chief executive officer Mark Bagan told reporters.
“There are very few exchanges outside the United States that are being traded by open outcry,” he said.
Bagan said closing the trading floor would result in the loss of 11 jobs at the exchange, or about one-quarter of the 40-person staff, and save roughly $500,000 a year.
But he said cost savings were less of an issue than streamlining the market as customers increasingly showed a preference for electronic trade.
“It’s really about how… we provide the greatest liquidity for our market participants. Clearly, having that split between two platforms isn’t in the best interest of any of our customers.”
It was unclear how many floor traders would lose their jobs, since they are not employed by the exchange. Many Minneapolis traders already work through both the pit and the screen throughout the day, Bagan said.
The MGE has a fixed total of 399 trader memberships, but traders estimated the average population on the trading floor on any given day at around 50 people, with roughly a dozen actively trading in the pit.
The exchange said it will continue to host a cash market for spring wheat from a new location inside its building, a Minneapolis landmark built in 1902.
In Chicago, traders at the publicly traded CME Group, the world’s largest derivatives exchange, said their open-outcry floor was still viable, due in part to the popularity of complex grain options contracts.
“I think we’re a number of years away from going all-electronic here,” said Virginia McGathey, owner of McGathey Commodities, a big Chicago wheat options trader and broker.
“There are a vast number of hedge strategies in the options market that an electronic system can’t facilitate,” she said.
The only other independently held U. S. exchange, the Kansas City Board of Trade, said it had no plans to scrap its pit.
“We have no intention at this time of closing our trading floor,” a KCBT spokeswoman said. “We believe that maintaining both venues provides our market participants with a choice of access to satisfy their risk management needs.”
In an effort to boost volume ahead of its transition to all-electronic trade, the MGE will waive fees on open outcry transactions for independent “local” traders from Nov. 1 through Dec. 19. The exchange also will waive fees for electronic trading permit holders Nov. 1 to Jan. 31, 2009.
Minneapolis traders said news of the trading pit’s demise was not unexpected.
“We all knew it was on the horizon, but it came sooner than the trade anticipated,” said Ryan Kelbrants with ADM Investor Services.
Said another trader, “The mood the floor is generally disappointed. Not that it’s a surprise, but when an actual date was put to it, it made people sad.”