The Effect of the Pit Closure on Futures Trading

Abstract

and Esen Onur is an Economist at the U.S. Commodity Futures Trading Commission. The research presented in this paper was co-authored by Eleni Gousgounis, a CFTC limited term-consultant, and Esen Onur, who is a CFTC employee, in their official capacities with the CFTC. The Office of the Chief Economist and CFTC economists produce original research on a broad range of topics relevant to the CFTC's mandate to regulate commodity future markets, commodity options markets, and the expanded mandate to regulate the swaps markets pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. These papers are often presented at conferences and many of these papers are later published by peer-review and other scholarly outlets. The analyses and conclusions expressed in this paper are those of the authors and do not reflect the views of other members of the Office of Chief Economist, other Commission staff, or the Commission itself. All errors and omissions, if any, are the authors' own responsibility. The Effect of Pit Closure on Futures Trading Motivated by CME's decision to close down most of the futures pits in July of 2015, we analyze the changes in a number of important CME futures marketsbetween 2012 and 2016. We find that although futures pit trading has been diminished to very low levels, it has not completely disappeared. While we do not have evidence of futures pit traders transitioning to the electronic market, we see that some futures pit traders are still active in options pit markets. When we explore the changes in daily trading patterns, we observe a shift in the timing of trading hours for a few select markets. In terms of execution costs, we do not observe any definitive effect of the pit closures on execution costs for most commodities in the electronic market. However, effective spreads for random length lumber futures appear to increase around the time of the announcement of the pit closures. A similar effect is observed for trading strategies in treasury futures during the roll periods.

The components of the bid‐ask spread: Evidence from the corn futures market

“…We filtered the data to ensure that the trading volume in the BBO data set (containing only transactions that occur on Globex) was greater than 50% of the volume reported by the Commodity Research Bureau for that day. Although Globex's share of volume steadily increased during our sample period, the day‐to‐day share is highly volatile (Gousgounis and Onur, ) . Finally, days on which prices were locked at the exchange's daily price limit were dropped, since there was not sufficient variation on these days to perform estimation.…”