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CME to include electronic trades in livestock settlement prices


Chicago | Reuters –– CME Group will begin including electronic trades in the calculation of daily settlement prices for its live cattle, feeder cattle and lean hog contracts, the exchange said in a letter to its livestock customers Monday.

The change, which is considered a blended settlement, will take effect from Dec. 15, pending a regulatory review by the Commodity Futures Trading Commission. Currently, livestock settlements are based solely on pit closing prices at 1 p.m. CT.

“We’re making this change to our CME livestock daily settlement procedures to ensure prices reflect trading activity across all trading venues, which we believe is important to the continued integrity of these markets,” exchange spokesman Chris Grams told Reuters in an e-mailed response to questions.

Livestock markets will be the last of the exchange’s benchmark products to incorporate Globex values into their settlement prices, he said.

Last Friday, combined Globex electronic livestock trading volume totaled 67,563 contracts, compared with 4,882 in the pits or open outcry, based on CME data.

The new settlement procedure will include calculated volume- weighted average prices (VWAP) of outright trades made in the pit and on the Globex platform for each contract month 30 seconds prior to 1 p.m CT.

Two volume-weighted average prices will be combined to produce a single VWAP settlement price for each contract month, which will then be rounded to the nearest tradable tick.

In the event there is no trade activity in a given contract month, the bid that is higher than the last sale or prior day’s settlement price, or the offer that is lower than the last sale or prior day’s settlement price in either the pit or on Globex 30 seconds before 1 p.m. CT, will determine the daily settlement price for that contract.

A detailed factsheet for the proposed changes is available online.

The modifications came after the exchange, the largest livestock futures trading platform in the world, reduced electronic trading hours for cattle and hog futures beginning Monday, Oct. 27 following a survey of its customers. [Related story]


Traders contacted by Reuters said they agreed with the potential changes because thin pit volumes sometimes sparked volatility about 30 seconds before the close.

“It is about time CME changed the settlement price on those hogs to include the screen trade,” said Dan Norcini, who trades livestock futures from his Idaho home.

“Pit locals have been able to jam the close there regardless of what the screen was doing, which is where all the volume is anyway,” he said.

This year, a group of grain traders dropped a lawsuit against CME over the implementation of a blended settlement in the corn and soy markets in 2012. They claimed the change would put them out of business because trades would no longer have to be executed in the pits at the close of trading.

— Theopolis Waters reports on livestock futures markets for Reuters from Chicago. Additional reporting for Reuters by Tom Polansek in Chicago.

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