Is Pit Closure Costly for Customers? A Case of Livestock Futures

Motivated by CME’s decision to close down most of the futures pits in July of 2015, we analyze the changes in the livestock futures market between 2014 and 2016. The livestock futures market, which had an active presence at the pit prior to the closure, has recently exhibited unprecedented price fluctuations. A simultaneous increase in the bid ask spread has raised concerns over the availability or liquidity in this market. The focus of our study is to analyze whether liquidity has changed for customer orders after the futures pit closed. In more detail, we track customer orders and evaluate their execution quality. We investigate whether execution costs for such trades have increased after the futures pits closed. In addition, we also examine whether customers have changed their trading behavior by placing more aggressive orders.