CME Group is replacing its open outcry auctions for dairy products on its Chicago trading floor with live online trading.
The auctions involve cash transactions for nonfat milk, cheese and butter.
In December, CME will begin to transition the nonfat dry milk market to an electronic auction platform. The butter and cheese markets are expected to transition during the first quarter of 2017.
The change is in response to requests from customers and dairy industry participants to use proven technology to increase the transparency and accessibility of prices discovered during the dairy spot call auction sessions, said Tim Andriesen, CME Group managing director of agricultural products.
“The transition to our electronic CME Direct Auction Platform will enable both auction participants and observers to more easily access information about spot dairy bids and offers as well as quantities in real time during the auction sessions,” he said.
Based on customer feedback, CME believes the transition has the potential to broaden industry participation in the spot call sessions, he said.
Moving to current technology makes a lot of sense, said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin.
“It’s possible that it will bring more liquidity into the market, and more liquidity is always a good thing,” he said.
But he wonders if people will still be able to see the transactions and understand who is buying and selling on the electronic platform.
Trading on the floor is anonymous, but one can get a pretty good idea who’s being represented in the pit. Making an educated guess might not be as easy online, he said.
During the electronic auction, trading counterparties will be anonymous to both participants and observers, but the platform will enhance the transparency of price discovery compared to the current spot call, Andriesen said.
“Participants and auction observers will be able to see the quantity and price of bids and offers for each spot call product in real time during the auction,” he said.
Users will also be able to see the depth of the book — all bids and offers, not just the best bid and offer.
“We believe this will result in broader customer and industry access to dairy spot call auction prices and trading,” he said.
CME Group will only reveal the counterparty information to the other counterparty at the end of each session. That level of information will not be revealed publicly.
In the case where a broker executes both sides of an order, he or she will know the respective counterparties before the end of a session, he said.
Participants who want to access the electronic nonfat dry milk auction on Dec. 5 must register online at www.cmegroup.com/spotcall no later than Nov. 21.
Beginning Oct. 18, registered parties will have the opportunity to participate in mock trading sessions to become familiar with the auction platform.