CME Group's plan to close most of its futures pits next month is facing its first organized opposition from a small group of Chicago traders and brokers who have hired a law firm to push regulators to give more time for review.
Lawyers from Katten Muchin Rosenman sent a letter to the Commodity Futures Trading Commission on behalf of the group, who work on CME's open-outcry financial trading floor in Chicago, to request a 90-day review on the closure of the pits, traders backing the effort said on Wednesday.
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CME, the world's largest futures exchange operator, on Tuesday postponed the closure of the pits to July 6 from the originally scheduled date of July 2. It said the CFTC could further delay the closure by up to 90 days.
CME is closing its historic futures pits in Chicago and New York because of dwindling open-outcry volume as the industry increasingly moves toward screen trading.
A CFTC comment period on the closure would benefit CME customers because users of Treasury futures cannot execute certain trades, known as rolls in calendar spreads, as efficiently in the electronic market as on the floor, said Michael Mette, an independent trader in the Treasury pit who is part of the group.
"We think that we still add value," Mette said, referring to traders and brokers on the floor.
Lawyers working for the traders include Christian Kemnitz, head of Katten's financial services litigation practice, and Paul Huddle, who formerly worked in the CME's market regulation department, according to traders and the firm's website. Kemnitz did not immediately respond to an email and Huddle declined to comment.
CME triggered a 10-day CFTC review of its plan to close the pits with a filing to the agency on June 21. During the review, CFTC staff could decide to further delay the closure if they determine CME's plan presents "novel or complex issues that require additional time to analyze" or is not properly explained, according to agency rules.
CME, in the letter to the CFTC, said it had taken action to address concerns that the closure of the pits would harm end users in the Treasury and Eurodollar markets. The company in May increased electronic offerings for trading Treasury futures calendar spreads and plans to further expand the offerings to meet customer demand, according to the letter.
A CME spokeswoman declined comment.
In the Treasury market, calendar rolls occur when an existing spread trade position is shifted to future delivery months as the current month contract matures.
Traders, bond investors and hedge funds trade spreads in Treasuries and Eurodollars to express views on how quickly the U.S. Federal Reserve may raise interest rates, or to protect bets made elsewhere, including the vast over-the-counter swaps market.
Open-outcry traders are able to customize an aspect of the calendar rolls, known as "tails," more easily in the pit, Treasury traders said. An attempt by the CME to improve the functionality of the electronic market during the latest roll period did not meet their needs, traders added.
(Additional reporting by Richard Leong in New York; Editing by Matthew Lewis)
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