Electronic versus open outcry trading in agricultural commodities futures markets

The Chicago Board of Trade (CBOT) introduced side by side trading of its agricultural futures commodities in August 2006. We analyze and compare market quality conditions in corn, soybeans, and wheat futures when these contracts trade simultaneously on open outcry and electronic trading venues. We find that volume migrates from floor trading to electronic trading and transaction costs are higher for floor than for screen-based trading. Nonetheless, we observe that both trading venues contribute significantly to price discovery. Given the recent surge in volatility in commodities futures markets, we also investigate activity variables such as volume that can help explain volatility in the two different trading platforms. We find that for agricultural commodities, variables that help describe volatility are not characteristic of the type of trading venue.