ICE EXPANDS US COMMODITIES UNIT IN CHALLENGE TO CME
- By -Electronic futures planned in corn, beans, wheat
Electronic futures planned in corn, beans, wheat
-Move comes as CME manages client backlash over MF Global
-Exchanges have poor record in challenging dominance
CHICAGO -(Dow Jones)- IntercontinentalExchange Inc. (ICE) on Thursday announced a big push into U.S. agricultural futures, in a challenge to the dominance of CME Group Inc. (CME).
Atlanta-based ICE is plans to launch futures in corn, wheat, soybeans, soybean meal and soybean oil in May, competing with long-established products offered by CME's Chicago Board of Trade unit. ICE lost out to CME in a bid battle for the CBOT.
While agricultural commodities futures market is dwarfed by the size of interest rate and equity-related contracts, it is also one of the most profitable for CME and is still expanding at a time when overall volumes are falling.
The move by ICE comes as CME tries to repair the reputational damage caused from the collapse of MF Global, which has seen many of its agricultural futures clients suffer losses.
ICE has already successfully broken the near-monopoly of CME's Nymex unit in benchmark oil futures and also challenged its currency business, but the industry is littered with failed efforts to challenge the dominance of exchanges that attract the most liquidity in a particular contract.
Grain brokers said ICE will face a tough challenge in luring enough volume away from CME to make its new contracts successful.
"They'd probably have a hard time getting sizable volume," said Tom Leffler, head of Leffler Commodities, a Kansas-based grains and livestock brokerage. "I don't see where there's a need for another exchange."
The contracts have "no chance of getting off the ground," said Rich Nelson, director of research for Allendale, a brokerage outside Chicago. "The market is fully entrenched with the idea that CME Group is the place for grain."
CME spokesman Chris Grams said: "CME Group agricultural products, including CBOT Grain futures and options, are global benchmarks that continue to offer the deepest and most liquid markets to customers around the globe. We believe competition is good for business, and we will continue to work with our customers to meet their needs for agriculture risk management."
CME's commodities complex, which includes agricultural commodities and metals, was the only product group to add volume in March versus a year ago. March volume was up 8.7% from a year ago, compared with a 21.1% fall in interest rate futures and options, a 26.4% decline in equity index contacts and a 10.7% decline in currency products.
ICE is an all-electronic exchange, whereas CME also retains floor trading. ICE said the new grain futures and options contracts will be available for the trade in mid-May, subject to review by the Commodity Futures Trading Commission. The contracts will be cash-settled, with daily settlement based on Chicago Board of Trade settlement prices, ICE said.
ICE already provides a range of U.S. and Canadian soft commodity futures and options, including futures and options in sugar and cotton. Its shares were recently 2 cents lower at $133.47, with CME up 0.7% at $286.02.
