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The effect of pit closure on futures trading

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  • Gousgounis, Eleni
  • Onur, Esen

Abstract

Motivated by the Chicago Mercantile Exchange’s (CME) decision to close down most of the futures pits in July of 2015, we analyze how this event may have affected the livestock and treasury futures markets. We find that although the already declining futures pit trading decreased further after the pit closure, it has not completely disappeared. Execution costs, following the pit closure, appear to have increased for livestock futures and declined for treasury futures transactions on the electronic platform. We, also, find that pit users, who had been active in both trading venues, remain active in the electronic market. However, there is no evidence of pit traders (locals) transitioning to the electronic market. Nevertheless, some of them are still active in options pits. When we explore the changes in daily trading patterns, we observe an ongoing shift in the timing of trading hours for livestock futures, but we note that this shift is unlikely to be driven by the pit closure.

Suggested Citation

  • Gousgounis, Eleni & Onur, Esen, 2018. "The effect of pit closure on futures trading," Journal of Commodity Markets, Elsevier, vol. 10(C), pages 69-90.
    • Handle: RePEc:eee:jocoma:v:10:y:2018:i:c:p:69-90
    DOI: 10.1016/j.jcomm.2017.11.002
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    Cited by:

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    2. Emm, Ekaterina E. & Gay, Gerald D. & Ma, Han & Ren, Honglin, 2021. "The rise and breakup of the commodity exchange membership: An analysis of CBOT seat prices," Journal of Commodity Markets, Elsevier, vol. 24(C).
    3. Esen Onur & David Reiffen, 2018. "The effect of settlement rules on the incentive to Bang the Close," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 841-864, August.
    4. Pankaj K. Jain & Ayla Kayhan & Esen Onur, 2024. "Determinants of commodity market liquidity," The Financial Review, Eastern Finance Association, vol. 59(1), pages 9-30, February.
    5. Zhepeng Hu & Mindy Mallory & Teresa Serra & Philip Garcia, 2020. "Measuring price discovery between nearby and deferred contracts in storable and nonstorable commodity futures markets," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 825-840, November.

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    More about this item

    Keywords

    Pit trading; Futures; Commodity markets; Liquidity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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