"Trade the CBOT $5 Dow Jones Day" for Thursday, July 25 Declared by John Lothian
I am declaring that Thursday, July 25 be "Trade the $5 Dow Day" at the CBOT and asking for all futures equity indices traders to take some time away from the normal markets they trade to help build the volume in this electronically traded market. I believe that having a deep, liquid market in the $5 Dow is in the best interests of all indices traders and I want to do something to helps create that depth and liquidity. Thus, I am asking traders to spend some time trading the $5 Dow on Thursday and other brokers to promote the idea to their customers.
And here is the payoff besides having another more liquid market to electronically trade on a separate matching engine at another exchange; I am challenging the CBOT to declare the one week anniversary of Thursday's "Trade the $5 Dow Day" as a "Fee Holiday" for all $5 Dow contracts. If we can double the volume record for the $5 Dow on Thursday, I asking the CBOT to waive all exchange fees for the $5 Dow for the next Thursday. The record is about 14,000 contracts and I figure we round it up to 15,000. So if next Thursday the $5 Dow volume is greater than the rather modest 30,000 number, then I am asking the CBOT to waive the exchange fees for the next Thursday. And actually, I would challenge the CBOT to make it the following two Thursdays as "Fee Holidays" if we triple the volume record on Thursday to over 45,000 contracts, and so on.
The Futures Industry Association has been encouraging competition among exchanges, which I also think is a good idea. I think competition is the opportunity to get stronger. The Commodity Futures Modernization Act of 2000 was supposed to create competition among exchanges, which has not occurred as hoped. The FIA has also has questioned whether some exchange fees are too high. By helping build volume in the $5 Dow and fostering competition among the exchanges I believe we traders will be making a statement that this fee argument has some merit. I am not pointing fingers at any exchanges and in fact believe that a strong $5 Dow market and some liberalized trading floor rules at some exchanges would create a broader and deeper spread market between these electronically traded contracts that could lead to even more, regular and consistent volume. Thus, even though we may introduce some competition that might in general push fees down, revenues could still grow from the increases in volume.
I think it is in the best interests of all indices traders to have multiple deep liquid futures indices markets to trade, regardless of what exchange you are a member of or not. And I believe that we traders need to act in our own interests and help the $5 Dow develop and attract that retail and institutional interest that will make it the alternative we need it to be.
I am told that back when the Eurodollars were introduced, Leo Melamed used to stand by the front door of the trading floor of the CME and that he asked traders to spend 15 minutes every day standing in the Eurodollar pit trading this new contract. And guess what, it worked and helped create one of the world's most liquid futures contracts. So I am asking traders of all stripes to make that same kind of commitment to the $5 Dow market. Trade it for 15 minutes, half an hour or whatever your normal trade time frame is for at least one of your trades on Thursday.
I am not asking you to do wash trades, or lose money or otherwise trade for no good reason. I am asking you to trade because this is a good contract on an good trading platform at an exchange with a historic commitment to innovation and new product development. This contract deserves to succeed and the CBOT has big plans coming soon to promote it broadly in forthcoming marketing campaign. I want to help it along and am asking for your help.
This suggestion for the "Trade the $5 Dow Day" is not made lightly, as it leaves me open to charges of self-promotion (as if I have ever been guilty of that?), and could be embarrassing if Thursday proves to be a low volume day. However, I am willing to take those risks, for the good to markets and industry would far exceed the potential reputational cost to me. I am a firm believer in focusing on the message and not the messenger, even if the messenger has a rather large shiny forehead.
I recognize that this "Fee Holiday" presents some operational challenges for the CBOT and the FCMs that process the trades. However, I think this is a good problem to have and that the CBOT and FCMs will gladly make it happen. We may need to show some patience, as the "Fee Holiday" may mean a fee rebate on the next day's statement, but I think it is well worth it. And if it works, the CBOT and perhaps other exchanges will be encouraged to try this more and that would create an environment for the fee rebates to be automated.
I believe the readership of this newsletter, those I send it to and those who it is forwarded to are capable of making this happen. I have discussed the idea with key CBOT staff and they were supportive. I asked for no guarantees, but believe the CBOT will meet my challenge if we can meet the goals I set. This is an opportunity to make a statement about the value of competition among exchanges and the need for multiple deep and different futures equity indices liquidity pools. Talk it up, talk to your broker about it, make sure your trading system is set up to trade the $5 Dow and lets make it happen.
Regards,
John J. Lothian
FROM: John Lothian's Daily Futures Industry News E-mails:
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