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  • 8.9.1-FUTURES MARKETS-FLOOR PROCEDURE

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  • Floor procedure

     
     

     

    In traditional open outcry or floor-based trading, the initiation of a contract transaction takes place on the floor of the exchange. Exact floor procedures vary from market to market. Some exchanges, such as Euronext-Liffe for London robusta (screen only) and ICE for New York arabica (floor and screen) and robusta (screen only), have moved trading to a screen-based environment and automated the entire process.

    In both floor and screen-based trading, there is usually some form of open auction during which buyers and sellers make their trades in public. Unlike the physical market, no privately arranged deals are allowed.

    The transaction is negotiated across the floor, providing all participants an opportunity to respond to the current bids and offers. The negotiation is concluded the moment a buyer and a seller agree with each other and the seller registers the contract as a sale to the clearing house. Thereafter, the two traders are responsible only to the clearing house. In this way, the clearing house is a party to every transaction made by both buyers and sellers.

    Automated or electronic trading is different but maintains the transparency of open outcry trading in that all bids and offers can be viewed by all participants. The computer system matches equivalent bids and offers without human intervention. Once the orders are matched, the clearing procedure is exactly the same as the old open outcry system.

    Futures contracts are standardized in that all terms are given, except the exact date of delivery, the names of the seller and buyer, and the price. The market rules are legally enforceable contract terms and therefore cannot be substantially altered during the period of the contract. Every futures contract specifies the quantity, quality, and condition of the commodity upon delivery, the steps to be taken in the event of default in delivery, and the terms of final payment.