More changes for the Futures markets and its participants…Competition among the Intercontinental Exchange (ICE) and the Chicago Mercantile Group Exchange (CME) is nothing new. Recently the ICE added the West Texas Crude oil contract to its products for traders. This was to allow traders to Spread trade the Brent Crude Oil (another ICE product) and the West Texas Crude on the same exchange. This would help keep the trading cost (margins) associated with Span Spreading across different exchanges to a minimum. The attempt to lure Oil traders away from the CME has not worked well for the ICE; this shows up in the daily volume figures. Perhaps the ICE will come up with some special pricing making it more attractive to trade Oil on their exchange, but until then the CME Oil contract is the king.
Now the ICE is trying to cut into the oldest Futures products on the CME, the Grain markets. Grains were one of the very first Commodity Futures contracts that ever traded in the United States some 160 years ago. Those transactions occurred on the Chicago Board of Trade (CBOT), now part of the CMEGroup. With the ICE offering the same contracts for the major Grain products as the CME, traders will have a choice of exchanges to trade on. But just because a contract is offered on another Exchange will the traders follow it?
Not if the CME has anything to do with it. Keep in mind that any time a customer leaves an Exchange to trade somewhere else, revenue is lost. For every trade that is made on any Exchange a fee is charged. These fees are known as Exchange Fees. They appear on your P&L statement each time you trade and are usually built into the price of your round turn commission you pay your broker.
The ICE is an all electronic Exchange and can offer their products for almost 24 hours per day without the expense of maintaining a trading floor like the CME has. When the ICE introduced their Grain contracts the CME Grain markets did 95% of their daily volume during the Regular Trading Hours (RTH), which was only open for 3 hours and 45 minutes. There was an electronic market for the Grains, but very little volume traded. Something else the CME did was to suspend the electronic trading… Continue Reading
