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The Effect of Pit Closure on Futures Trading

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  • Gousgounis, Eleni
  • Onur, Esen

Abstract

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 markets between 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.

Suggested Citation

  • Gousgounis, Eleni & Onur, Esen, 2016. "The Effect of Pit Closure on Futures Trading," 2016 Conference, April 18-19, 2016, St. Louis, Missouri 285852, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13416:285852
    DOI: 10.22004/ag.econ.285852
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    References listed on IDEAS

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    Cited by:

    1. Hu, Zhepeng & Mallory, Mindy & Serra, Teresa, 2017. "Measuring Price Discovery between Nearby and Deferred Contracts in Storable and Non-Storable Commodity Futures Markets," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285866, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Gousgounis, Eleni & Onur, Esen, 2017. "Is Pit Closure Costly for Customers? A Case of Livestock Futures," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285868, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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