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NGFA calls on CME to halt trading if electronic platform fails.

CME Group should develop a new contingency plan to cover any future problems with its Globex electronic trading platform similar to one that struck in early April, according to recommendations offered by the National Grain and Feed Association (NGFA).

In a letter to CME Executive Chairman and President Terry Duffy, NGFA calls on CME to prepare and make known an emergency response plan that details specifically "what happens next" in the event of an outage.

Second, NGFA recommends that part of such an emergency response plan should be that, in the event of a Globex outage, "open outcry trading will be suspended until Globex again becomes operational."

During the April 8 outage, CME shifted immediately from Globex to open outcry. NGFA recommends against repeating this action because it notes that many firms have transitioned their systems to the electronic platform and are not prepared to try to execute large order volumes through the pits, which in turn are no longer prepared to handle such volume.

In addition, says NGFA: "[M]any participants on April 8 already had entered orders in Globex that couldn't be cancelled; therefore, they couldn't be entered in the pits for execution because those participants were not sure which orders might be filled when Globex came back online and did not want to double up on orders. Further, allowing open outcry trading to continue during a Globex outage would create at least the potential for significant market moves to occur without providing equal access to all market participants seeking to offset risk. By suspending trading, all participants will be ensured fair access to markets, and confusion as to positions will be limited."

The trade association also recommends that if Globex comes back up on the same day that there was a failure, even after regular trading hours have ended, "it may be useful to re-open both Globex and the pits for a relatively short 'clean-up' session."

NGFA's letter came in response to an invitation by CME for market participants to comment on the Globex crash and to make recommendations for how to handle such problems in the future.

NGFA is a trade association that represents more than 1,000 grain, feed and related commercial businesses that operate about 6,000 facilities and handle more than 70 percent of U.S. grains and oilseeds.
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Publication:The Food & Fiber Letter
Date:May 26, 2014
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