Is the Death of CME's Open Outcry Trading the Death of True Price Discovery for Commodities?
CME Open Outcry 050621
A tradition for more than 100 years will now be a thing of the past. The CME Group announced this week it's not reopening the open outcry pits on the trading floor, which means the tradition will be gone for good.
CME closed the pits last March at the start of the pandemic. Traders like Patrick Quaid were forced to move to electronic trading as the floor shut down, but he says he and many of his colleagues were holding onto hope CME would reopen the floor again.
"I still feel that the open outcry method is the best form of price discovery," says Quad who is an executing broker in the corn option space in the CME Group.
Only the Eurodollar options pit, which was reopened last August, will remain, which means trading ag products like corn and soybeans, to even livestock, will no longer have human to human interaction in the pit. Quaid fears the move will create even more volatility.
"When humans were trading with humans, it seemed that everything went smoothly," says Quaid. "When you're going with the screen, sometimes you just have to take chances and, you know, you put your order out there and hope it gets hit. In the pit, you were able to populate the bid and offers before you got the order.
"On the screen you have to put your order out there, then it populates. So it's the opposite," he adds. "That's the thing is the integrity. The one great thing about the floor is when people made markets, they had to stand by on the screen. Now, you have no idea who the counterparty is, and that's where things get a little messy."
Quaid believes it's no coincidence markets like corn and crude oil saw extreme volatility over the past year. He says it's a product of the trading of commodities moving to electronic platforms.
"It's going to definitely light a little fuel to the fire, and you're going to have moments of no extreme moves like we've seen in the past 14 months," he says. "Crude was negative, you know; we had corn go up a little $3. I mean, this is within a year, how crazy this has been. A lot of this is when you had humans involved, and you had humans riding the ship, maybe things don't get as crazy and extreme. But that's only my opinion. I just know, when we were there in the pit, things would never get this out of line."
Farm Journal reached out to CME Group for comment, but a spokesperson says CME doesn't have any additional information or comment to add at this time and declined an interview.
The London Metal Exchange is considering weather it will reopen its open-outcry trading ring...or permanently shut it down. It is the only floor of its kind in Europe. But Quaid points out the New York Stock Exchange still sees value in human to human interaction. The Exchange recently expanded rules for people to enter the floor.
