Lumber coming to CME Globex e-platform
Mon Aug 25, 2008 1:42pm EDT
By Jerry Bieszk
CHICAGO, Aug 25 (Reuters) - Lumber futures, the only commodity not yet traded electronically at the Chicago Mercantile Exchange CME.N, will start electronic trading this fall in a bid to draw more investment and speculative money to the market, trade sources said.
The CME could announce as early as next week that lumber futures will trade on its Globex electronic platform in the fourth quarter, alongside the traditional pits where trading in the futures contract began in 1969.
The introduction of the 'side by side' system, the simultaneous use of pit and electronic platforms, has proven successful to the exchange and led to a surge in volume in screen-based trading of commodities such as corn.
The CME, which owns the Chicago Board of Trade where agricultural commodities like corn are traded, declined to comment on lumber futures being listed on its Globex system.
But trade sources said some players in the lumber market have been told by the exchange to get ready.
"I have been informed that we should get our Globex system because it will be in the fourth quarter," said Ashley Boeckholt, a lumber analyst with Bloch Lumber.
"I'm absolutely 100 percent in favor of it -- it should have been done years ago," he added.
Bloch Lumber is in the cash lumber business but relies on the lumber futures market every day to hedge forward sales and on-hand supplies.
Boeckholt expects that adding Globex as a trading tool would help increase open interest, the measure of a market's liquidity, by adding funds to the list of players.
"Look what happened to corn when they went electronic," said Boeckholt. "As far as I know all the commodities that have gone electronic have increased their open interest. Funds will trade them because they can get (order) fills a lot better."
"It's a pain for me to have to call down to a floor when I'm hedging millions of dollars in inventory and wait hours to get fills back or have people from the floor call me and say traders in the pit are complaining because I'm canceling some of my orders," Boeckholt said.
"Electronically, they don't have to worry about me canceling my orders because I can do whatever I want on there," he added.
The Commodity Futures Trading Commission, which regulates commodities futures markets, said in its latest weekly report that open interest in lumber futures totaled 14,386 contracts, up more than four times the open interest of five years ago.
Noncommercials, or large speculators, held 4,217 long and 4,030 short contracts, while commercials, or companies involved in the lumber trade, were 5,169 long and 5,850 short.
A lumber contract consists of 110,000 board feet of 2X4s in 8 foot to 20 foot lengths, a type of lumber used mainly in the housing market.
Some floor and pit traders were not convinced that electronic trading would increase interest in the market.
"It's going to be underutilized," said Brian Leonard, lumber analyst with Rosenthal Collins. "There's a large discrepancy between bids and offers in this market. They attempted to do the cash market like this before and the problem was that the bids and offers were far apart."
Some felt pit trading served customers better.
"A lot of times orders get filled better in the pit than on the screen because you can work them," said professional pit trader Mike Mason. "You don't work them on the screen, you just do them." (Reporting by Jerry Bieszk; editing by Jim Marshall) |
