SAVE THE FLOOR, INC & PROTECTING THE PITS, INC
Recently, the CME administrative staff has introduced a proposal to
modify the settlement procedures for the several CME and CBOT futures
products, moving from reliance on pit trading activity to CME Globex
trading activity. It has been defined as a ("VWAP"). In case you didn't
get an A in algonomics, this is a hybrid settlement methodology that
will utilize a blended volume-weighted average-price of Floor and Globex
activity to determine settlement prices. This change was introduced
without any input from traders that use the market place. Furthermore,
neither customers nor market makers will have any ability to comment on
the approval of this rule, or to refine the way and timing during which
these rule changes are implemented.
The CME open-outcry provides about 2,000 jobs each day. This is a conservative estimate and does not take in account the workforce around the building. Our experience with the CME implementation of electronic settlements in the Wheat and Rice contracts has been a dire situation. It has drastically altered the market conditions of the exchange. Not only has the trading pit lost almost all of its business, hundreds of jobs have gone with it. We believe that implementing these rules will result in a similar loss of jobs in any other futures contracts. Now, the CBOT wheat contract is merely a function for manipulative algorithmic bids and offers and this has taken away any true lack of real market makers with 'sticky liquidity.' The entire volume and the integrity of the contract have been affected.
The proposed change raises the possibility of increased volatility and the risk of price distortions during the closing period because the greater speed of electronic trade is likely to result in a greater price impact in the event of sub-second liquidity imbalances.
The CME's current settlement practices in futures do not expose participants to abusive practices or otherwise impede fair and equitable trading. The settlement procedures are fully transparent, based upon competitively executed transactions and observed spread relationships by experienced and knowledgeable market participants.
We want the voice of the customers and floor traders to be heard during proposed changes. Why does the CME management continue to implement strategies and algorithms that drive volume away from the floor? This exchange has been in existence since 1848 and we are truly concerned for the future.