UPDATE 3-CBOT grain pits to open earlier on USDA report days
* Pit trading to start at 7:20 a.m. CDT on USDA report days
* Open-outcry cycle will start at 9:30 a.m. on other days
* Extended hours begin on June 12
* CME says it's considering adjusting pit settlement time (Adds comments from CME in paragraph 4 and USDA in paragraph 15)
By Tom Polansek and Sam Nelson
CHICAGO, May 25 (Reuters) - The Chicago Board of Trade's iconic grain trading pits will open for business more than two hours earlier on mornings when the U.S. government issues price-sensitive crop reports, CME Group said on Fri day, aiming to appease floor traders after electronic hours were expanded.
The massive exchange this week made the transition to nearly non-stop electronic trading of commodities like corn, wheat and soybeans in a bid to defend market share against rival IntercontinentalExchange.
CME said the markets will keep their existing trading schedule on days that the U.S Department of Agriculture does not issue key crop reports, maintaining a 45-minute split between the end of pit and electronic trading.
However, later in the day, a spokesman for the exchange said CME was "still considering extending open-outcry hours" to 2 p.m. CDT from the current 1:15 p.m. close.
The increase in morning trading hours could ultimately be a stop-gap measure for CME, as USDA is considering pushing back the time that it releases crop reports in response to the increase in electronic trading hours.
"They're trying to accommodate everybody," said Tom Uhlmann an independent floor trader, about CME. "It's either open early or have USDA change their release times.
CME, which owns the Chicago Board of Trade, the world's largest grain exchange, said that starting on June 12 open outcry trading will begin at 7:20 a.m. CDT ( 1220 GMT) o n days that the USDA issues key crop reports, instead of at 9:30 a.m. Trading will close as usual at 1:15 p.m.
Crop reports are released at 7:30 a.m.
"DEAL WITH THE CRAZINESS"
Options traders on the CBOT floor led the drive to expand open-outcry hours so they would not lose volume to electronic trading during USDA reports, which often roil markets. Most options volume is executed in the pits.
CME increased electronic trading to 21 hours per session from 17 hours on Monday after ICE launched lookalike grain and soy contracts last week on a 22-hour basis.
As long as electronic trading is going to be open during USDA reports, open-outcry options and futures pits also "need to be there" to increase liquidity and reduce volatility, said Jerry Gidel, chief feed grain analyst for Rice Dairy.
"The concept of having the other two entities there to help the markets deal with the craziness, I'm in favor of it," he said.
CME has had a piecemeal response to the challenge from ICE, first proposing an expansion of electronic trading to 22 hours and then settling on a revised 21-hour schedule after an outcry from grain groups.
The change in CME's open-outcry hours may be a temporary solution to floor traders' complaints as the USDA is considering pushing back the release time for crop reports to mid or late morning, when markets are more liquid, according to an industry official who met with the agency on Thursday.
The USDA said on Friday it will gather input on whether to change the time it releases crop reports.
PIT SETTLEMENT UNCHANGED
Many longtime market participants said they would still prefer that all the markets stay shut when USDA reports are released.
Gerald Corcoran, chief executive of R.J. O'Brien, the largest independent U.S. futures brokerage, told regulators in a letter this week that he supported starting pit trading at 7:20 a.m. to increase liquidity, except on USDA report days. He advocated a pause in trading on report days to give traders time to analyze the data.
Corcoran and others had lobbied CME to push back the close of pit trading to 2 p.m. so that electronic and open-outcry trading would end at the same time.
Since electronic trading increased, some merchandisers have based cash grain prices off the newly implemented end of electronic trading at 2 p.m., while others have based prices off the open-outcry settlement at 1:15 p.m., causing confusion in the markets.
CME announced a different change for the close of trading on Friday, saying settlement prices as of June 25 will incorporate activity from electronic trading and not just pit trading.
"Leaving the close at 1:15 is going to frustrate a lot of people," said Mary Ann Kwiatkowski of Amber Trading, a veteran floor trader and independent broker.
The CME spokesman said the exchange would continue to talk to customers about the time that pit trading ends. (Additional reporting by K.T. Arasu; Editing by David Gregorio)
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