Agricultural News
CME Acquisition of KCBT Blends Old and New to Benefit Shareholders, CEO Says
Thu, 08 Nov 2012 16:22:30 CST
With the purchase of the Kansas City Board of Trade by the Chicago Mercantile Exchange Group last month, KCBT's hard red winter wheat contract is now traded almost around the clock.
Jeff Borchardt, president and CEO of the Kansas City Board of Trade, spoke with Radio Oklahoma Network Farm Director recently in Kansas City and says the acquisition has many benefits for shareholders and market users alike.
"With the CME's resources we'll be able to give market participants more products and more trading opportunities with respect to Chicago-based products than they are currently able to do just under our roof. So, there's that advantage. The Chicago Board of Trade is a natural fit for the Kansas City Board of Trade because, obviously, they're the global benchmark for corn, soybeans, and their variety of wheat. And so to bring our global benchmark milling wheat contract in with theirs, it's a pretty natural fit."
Under the agreement with CME, Borchardt says there will still be a physical trading presence in Kansas City for at least six months. KCBT is the oldest company in Kansas City and has been there since its founding 156 years ago. Borchardt says there are hopes that the board's physical presence will continue. He said the board's futures contract and it's utility will not change, and CME has "committed to maintaining an advisory committee made up of our wheat contract committee members for at least three years. And that's a pretty good time frame to comfort the marketplace to know that nothing drastic is going to change any time soon."
With the rise of electronic trading there has been a move away from open outcry bidding in other markets, but Borchardt says it still plays an important role in Kansas City.
"We saw it in the financial markets first. They were the first to go electronic and we knew it would happen with ag, but we knew they would probably be the last holdouts. And they have been.
"With respect to the futures, we've seen them migrate over. Options still on both the Chicago Mercantile Exchange and our exchange, I think about 60 percent to two-thirds of the options volume still takes place in the pits because of the complexity of those strategies. But the futures have gravitated over since we went side-by-side in 2006. We're up to, I think last month we did one percent of our futures volume in open outcry in the pits. It's just an eventuality of the technology."
With the movement toward electronic technology, is there are place for continuing open outcry trading?
"Absolutely. I think CME, they still run trading floors for futures but also, primarily, for the options that still trade predominantly on the trading floor. So, they recognize the value involved in having those market makers present to provide deep, liquid markets for these complex strategies. That's why it's been difficult to trade them electronically like futures that are pretty standard. So, it's easier to package them in and trade them electronically, but with options, due to the complexity and the myriad strategies that you can get involved with, they've leant themselves to sustaining the open outcry arena."
Click on the LISTEN BAR below to Borchardt's full conversation with Ron Hays.
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