Market Matters Blog

TAS Orders Available Starting Monday

CME Group is rolling out a new futures order type for agriculture products next Monday to help smooth the transition to electronic-only trade, and experts believe the new trade at settlement (TAS) order type has beneficial aspects for the grain industry.

TAS, as it's commonly referred to, allows market participants to buy or sell futures contracts during the day equal to the yet-to-be-determined market settlement price plus or minus 4 ticks, said CME Director of Commodity Products Tim Andriesen. One tick is one-quarter of a cent.

During harvest, this could give grain elevators the ability to pre-hedge the bushels they plan to buy after the market closes at the settlement price. It could also give the market a little more flexibility when it's locked in limit-up or limit-down trade.

"So any time during the day, I could say I want to buy 10,000 bushels of corn at the settlement price, and I'm willing to pay 1 tick more than the settlement price to get that done," Andriesen said. "It is a market, so you have to have somebody who is willing to sell it to you at 1 tick more."

The order will execute, but the absolute value of it won't be known until after the market settles at 1:15 p.m. CT.

TAS orders will replace market-on-close (MOC) orders, a type of order that can be executed in open-outcry pit trade but not on CME's Globex platform. CME will be closing its futures pits after the July 2 trading day. Options pits will remain open for grains, oilseeds and livestock markets.

Settlement in the grains will remain at 1:15, but the electronic futures market will continue to trade until 1:20 p.m. effective Sunday, July 5 for the July 6 trading day.

Diana Klemme, vice president of Grain Service Corporation, said the people who are most likely to use TAS orders already used MOC orders to buy or sell before weekends or overnight.

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"Frankly, I think they will find it more useful and like it better than the old system," she said.

On a recent conference call with grain elevators, no one said they thought the idea was horrible. They had very few questions and found it reassuring that TAS has been in use in other markets for quite some time.

In the energy markets, 97% of the TAS business is done at flat, which means at the settlement price or plus 1 tick, Andriesen said. "Some of the time trying to do MOC orders, you would get a fairly good-sized range on the settlement and it might be more than 1 tick off the settlement price where you got your pre-hedge executed."

Klemme said the switch to TAS will help avoid other issues that can arise with MOC orders, like calling your broker only to find that everyone's trying to do last-minute business and you can't get the order through.

For grains, TAS orders will be available on the first three listed contracts, plus the first new-crop month, if it's not already represented in the first three months. So on June 15, TAS will be available on the July, September and December corn contracts. In February, TAS will be available on the March, May, July and new-crop December contact. TAS will be available for corn, soybean (including meal and oil) and wheat, but not for rice and oats.

In the livestock markets, TAS will only be available of the first two listed contracts.

TAS will also be available on spreads. For grains, it'll be available on the old-crop, new-crop spread and the first two listed calendar spreads. For livestock, it'll only available for the first listed spread.

Andriesen and Klemme said it'll take time for the industry to learn about TAS and start using it. They think TAS will likely be a popular tool to help grain elevators hedge at times of year when they expect to buy a lot of grain during non-market hours, like harvest. It could also be an option on days when the market locks limit up or limit down.

TAS lets you trade the settlement price +/- 4 ticks, Andriesen said. In theory, that adds about a penny to the limit. He anticipates that on locked-limit days TAS orders are more likely to be filled if they're the settlement price +/- 4 ticks because they allow a little more room for a trade to take place. It'd be less likely that a settlement +/- 1 tick would be filled.

"It does allow a little bit more space on limit days," he said. "Keep in mind that this is a market, so to trade TAS, a TAS buyer and a TAS seller have to match on price and on quantity. Putting in a TAS order doesn't necessarily mean you will get it done."

On locked-limit days, Klemme said, "we'll find out how it works. It doesn't take anything away, and it just might let us get things done that we might not have been able to do before."

Klemme said TAS reminds her of the 1980s when options were first introduced in ag products.

"No one knew what a put or a call was. But what we learned over time was that marketing with just futures was like using a sledgehammer, and marketing with options was much more like using a scalpel. There are some things TAS will let us do on the close to limit risk that we couldn't do with MOC orders. It'll take a while to learn what you can do with it, but we'll adapt."

If you'd like more information on TAS, please visit www.cmegroup.com/agtas

Katie Micik can be reached at katie.micik@dtn.com

Follow Katie Micik on Twitter @KatieMDTN

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