The Effect of the Pit Closure on Futures Trading

Abstract

Motivated by the Chicago Mercantile Exchange’s (CME) decision to close down most of the futures pits in July of 2015, we analyze how this event may have affected the livestock and treasury futures markets. We find that although the already declining futures pit trading decreased further after the pit closure, it has not completely disappeared. Execution costs, following the pit closure, appear to have increased for livestock futures and declined for treasury futures transactions on the electronic platform. We, also, find that pit users, who had been active in both trading venues, remain active in the electronic market. However, there is no evidence of pit traders (locals) transitioning to the electronic market. Nevertheless, some of them are still active in options pits. When we explore the changes in daily trading patterns, we observe an ongoing shift in the timing of trading hours for livestock futures, but we note that this shift is unlikely to be driven by the pit closure.