electronic trading and the globalization of grain markets prepared by: charles whitman founder and...
TRANSCRIPT
Electronic Trading and the Globalization of Grain Markets Prepared by: Charles Whitman
Founder and CEO, Infinium Capital Management
February 24, 2011
USDA’s 2011 Agricultural Outlook Forum Today’s Strategies & Tomorrow’s Opportunities
Intro
“The revolutionary idea that defines the
boundary between modern times and the
past is the mastery of risk: the notion
that the future is more than a whim of the
gods and that men and women are not
passive before nature…. By showing the
world how to understand risk, measure it,
and weight its consequences, they
converted risk-taking into one of the
prime catalysts that drives modern
Western society”
Risk Management
Risk Management Understanding = Major Business Edge
Hedge Away Risks
Focus On Core Competency
Benefits of Electronic Trading
Transparency
Access- 24 Hour Markets
Increased Volume & Liquidity
Tighter Bid/Ask Spreads
Faster Product Adoption
Instant Reporting & Risk Management
2007 2008 2009 2010
0%
20%
40%
60%
80%
100%65%
83% 88% 88%
Corn FuturesElec % of ADV
2007 2008 2009 2010
0%2%4%6%8%
10%12%14%
<1% 2%5%
13%
Corn OptionsElec % of ADV
2007 2008 2009 2010
0%
20%
40%
60%
80%
100%
61%82% 86% 88%
Soybean FuturesElec % of ADV
2007 2008 2009 2010
0%2%4%6%8%
10%12%14%
<1% 2%4%
11%
Soybean OptionsElec % of ADV
Accessibility Due to Electronification
20072008
20092010
0
5
10
15
20
25
30
9
19 22
30
CME Ag Contracts With More Than 50% Electronic Volume
Global Ag Exchanges
Africa South African Futures Exchange
Asia Agricultural Fut Ex of Thailand Bursa Malaysia Central Japan Commodity Ex. Kansai Commodity Exchange Korea Exchange Singapore Exchange (was SIMEX) Tokyo Grain Exchange
Australia Australian Stock Exchange
Canada ICE Futures Canada
China Dalian Commodity Exchange Zhengzhou Commodity Exchange
North America Chicago Board of Trade Chicago Mercantile Exchange ICE Futures US Softs Kansas City Board of Trade Minneapolis Grain Exchange New York Mercantile Exchange
India Multi Commodity Ex. of India National Cmdty & Derivs Exch.
Latin America Bolsa de Mercadorias e Futuros Mercado a Termino Buenos Aires Rosario Futures Exchange
Europe NYSE LIFFE - London NYSE LIFFE - Paris Russian Trading System Turkish Derivatives Exchange MFAO Olive Oil Exchange
Accessibility Due to Electronification
Accessibility Due to Electronification
20072008
20092010
0
10
20
30
40
50
60
70
37 45 5163
Number of Ag Contracts Listed on CME
Challenges
Technology (Safe, Stable & Fair) Error Prevention Scalability & Bandwidth Equal Direct Access
Fair Access to All Market Participants Dark Pools
Willingness to Change Hesitant to push the button Some parties have a vested interest in holding on to the “old” way
of trading
Risk Hedging
Grain prices
Energy prices
Interest rates
Margin Hedging
Benefiting From Electronic Ag Markets
Benefiting From Electronic Ag Markets
Strategy Examples Futures Futures Spread Cash/Future Swap – EFP (Exchange for Physical) Options
• RFQ (Request For Quote)• Outright Options• CSO (Calendar Spread Options)
Inter-Commodity Spreads (and Spread Options)
Thank You
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