Trading hours for CME Case Shiller futures to change after Labor Day

The CME announced yesterday (Aug 27th) that they will be changing the trading hours for the Case Shiller futures starting Tuesday Sept 3rd.  Contracts will be open to trade from 8:15 AM -3 PM (Chicago hours, or 9:15 AM to 4 PM for those of us in the New York area).  (See CME announcement here )

I have advocated for, and am very pleased with, the new schedule as it addresses one of the key problems associated with less liquid contracts -that of fragmented interest.  Now, instead of interested parties checking for activity during a 21 hour period, trading will be confined to < 7 hours.   Traders are more likely to run into each other when they have fewer chances to do so.  I expect this change to be a great example of when “less is more”.

I see several additional benefits.

  • Traders are more likely to focus on the 9:15 AM (NYC) open than the current 6 PM open (from the night before).
  • Traders can use the odd opening hour to react to early-morning housing related news (e.g. new home sales, starts, index releases).  Traders might want to get into the routine of checking in on CME Case Shiller trading from 9:15-9:30 to express reactions to such economic data.
  • Traders will no longer have to pull orders, or widen bid/ask spreads, on the mornings that Case Shiller indices are released.  (Currently many bids and offers are pulled, or modified, only to be reentered at/near the original levels.  Moving the CME “open” to 9:15 will allow traders to maintain those orders through the CS release with the knowledge that they will have 15 minutes to modify quotes after the indices have been released.  This should dramatically reduce the experience of bid/ask spreads widening from 3 points to 10 points (or disappearing all together) on the morning CS #’s are announced.)
  • Market makers, and those posting GTC orders will not have the risk of a major event occurring overnight (e.g. earthquake).
  • There will be less need for any traders or market-making firm to “move the book”.
  • Daytime trading should reduce the wide price swings that have occurred in some overnight markets in the past (e.g. LAV last year).
  • The new trading hours will still allow European and Asian traders access to prices during a portion of their trading days.
  • The move to a 4PM close (3 PM Chicago) should facilitate any efforts to link futures trading to the stock market (e.g. for a potential ETF collateralized by home price futures).

I applaud the CME on this effort to modify trading hours in an attempt to encourage liquidity.  I would encourage interested parties to demonstrate their appreciation of this move by the CME by making a New (school) Year’s resolution to give the Case Shiller futures another look.  Market sentiment seems to be shifting from universal bullishness to concerns about the strength of the investor-fueled rally in home prices in some areas.  Much has been written about possible impacts of rising interest rates.  Investors have noted increased (longer-term) volatility in home prices.  It sounds as if discussions related to home price hedging should be on the rise.  This move by the CME is a good start to facilitating those discussions.

I will offer some trading themes for consideration (e.g. outright markets, calendar trades, implied HPA, intercity spreads) in future blogs.  If anyone wants to have a theme highlighted, please feel free to contact me at johnhdolan@homepricefutures.com