Chicago Merc Ready To Take On Europe's Top Exchange
By Kristina Zurla
Of DOW JONES NEWSWIRES
CHICAGO (Dow Jones)--The Chicago Mercantile Exchange Holdings Inc. (CME) doesn't see the impending entry into the U.S. derivatives market by the leading European exchange as a threat, nor does it intend to copy the success of its new rival by rushing to switch to an all-electronic trading platform.
Speaking for the first time to the media since becoming the first U.S. exchange to go public Dec. 6, CME Chairman Terry Duffy said few people were surprised by last week's announcement that Eurex, the all-electronic Frankfurt-based derivatives exchange, would seek to crack the big U.S. market for futures and options.
"We are going to continue with our strategic business plan. We think we have a solid business plan," he said during a news conference.
That plan includes continued product innovations, technology enhancements, and growth via alliances and/or acquisitions. Exchange officials did not provide any earnings projection for 2003 or specifics relating to future acquisitions.
"We don't want to talk about the prospects for alliances, but clearly what management focuses on is growth," said James McNulty, CME president. The exchange has a joint venture in place with Tokyo's Stock Exchange, with Singapore's SGX, and it also recently signed a memorandum of understanding with Korea that it intends to build on. Options on Korea's KOSPI 200 index are the most heavily traded derivative product in the world.
"We will continue to work closely with our alliance partners and continue to look at new avenues for growth," said McNulty.
Leo Melamed, chairman emeritus of the exchange, said China is one market they have "got to look at" for long-run opportunities, as well as Central America. "We are looking at the far East, but also all centers of trade," he said. "I don't think the Chicago Merc will ignore any part of the world."
The CME posted its third straight record-volume year in 2002, with 558.4 million contracts traded, making it the largest futures exchange in the U.S. and the second largest in the world - behind Eurex which traded more than 800 million contracts in 2002.
While coveting the top spot, CME's immediate goal isn't to move to an all-electronic platform - at least not yet.
"Our exchange is in the business of offering risk management services to the world...whatever the best breed that is, is what will be in," said Jack Sandner, special policy adviser and former chairman of the exchange. "We've pursued an artful approach with respect to electronic and open outcry venues....the customers will tell us when the best time is to make the switch."
The exchange plans to keep enhancing its technology this year to allow more users access to its electronic platform from more global hubs, and leaders emphasized that technology is the key to the future of the CME.
Average daily volume at Eurex in 2002 was 2.24 million contracts, versus 2.22 million at the CME.
Last week Eurex said it plans to offer a full spectrum of interest rate, index and equities products by 2004 - areas in which the CME dominates here. The CME's short-term interest rate product, the Eurodollar, is the largest U.S. futures product traded in the U.S. Eurex has not made it clear what its specific lineup of products would be at this stage.
In the nine months ended Sept. 30, CME revenue was $333.8 million, up from $282.2 million in the 2001 period, while net income rose 12% to $61 million.
-Kristina Zurla, Dow Jones Newswires; 312-750-4132; kristina.zurla@dowjones.com |
