Electronic trade surges in leading US debt futures
(UPDATE: Adds FIA ranking, paragraph 9)
By Meredith Grossman Dubner
CHICAGO, Feb 5 (Reuters) - Electronic trade racked up more than half of total monthly volume in two of the most actively traded U.S. debt futures contracts for the first time in January, signaling a much-anticipated shift to the screens is gathering pace.
U.S. Treasury bond futures volume on the Chicago Board of Trade's a/c/e electronic trading platform totaled 2.2 million contracts in January, or 54.1 percent of CBOT bond volume. Ten-year note contracts on a/c/e totaled 3.1 million contracts last month, or 55.5 percent of total exchange volume for that product.
In 2001, bond futures volume on a/c/e comprised 38.3 percent of total exchange volume for the product. Ten-year note volume on a/c/e was 36.5 percent of total 10-year volume last year.
``Well, for us floor guys, those are not real encouraging numbers,'' one CBOT bond broker said. ``We've seen a recent surge here on the computer platform, absolutely. It's just the evolution of the business -- that's which way it's heading.''
Some brokerage firms have aided the migration to the screens by requiring floor brokers to fill a certain percentage of orders on their front-end electronic systems -- platforms designed to interface directly with a/c/e without brokers and traders shouting across the floor or exchanging hand signals.
ECONOMIC SLOWDOWN IS CATALYST
Another CBOT bond futures broker said a slow economy has caused dealers to execute trades electronically to tighten pocketbooks by eliminating floor broker and pit broker fees.
Dealers can reduce, or even eliminate, brokerage fees by using electronic platforms. For example, a floor broker fee of $1.25, plus a pit broker fee of $1, adds $2.25 to the CBOT's 5-cent member clearing fee for pit trades.
``When things are slow, the (electronic platform) has a tendency to take more market share,'' the second broker said. ``When you call me and do the trade (you pay brokerage fees), versus clicking the mouse on the electronic platform.''
The CBOT's bond and 10-year note futures contracts were ranked 9th and 10th, respectively, in volume among global derivatives contracts, according to the Futures Industry Association. The Chicago Mercantile Exchange's Eurodollar contract was the most actively traded futures contract in the world last year.
CBOT spokesman David Prosperi said the volume figures were evidence that the exchange's business strategy is working.
``We are providing the best open auction and electronic markets and allowing our customer to decide where to put the business,'' Prosperi said. ``And it's pretty clear they're continuing to put it in both the pit environment and electronic environment.''
The CBOT implemented a new fee system at the start of the year, increasing a/c/e clearing fees while keeping member pit fees steady. On the screens, members pay between 15 cents and 18 cents a side, depending on the size of the trade, compared with a 5-cent member fee in the pits.
The highest fees under the new structure are for non-members trading financial and agricultural products on a/c/e. They pay between $1.25 and $1.50 per side, depending on the trade's size, up from just 80 cents under the old fee plan.
PIT NOT DOOMED YET
The CBOT, the nation's oldest commodity futures exchange, currently is in the process of converting from a not-for-profit, member-owned institution to a for-profit, shareholder corporation. It is waiting for a green light from U.S. federal regulators on its conversion.
In its filings with the U.S. Securities and Exchange Commission, the CBOT set up guidelines for review and possible pit closure of products whose volume falls below 30 percent in open outcry pits.
The Chicago Mercantile Exchange, which completed its demutualization in November 2000, has set up similar minimum volume requirements for pit-traded products.
But traders said the move above the 50 percent volume mark for electronic trade of bond and note futures does not mean the pit is doomed -- at least not immediately.
The shift to electronic trading is a gradual process, they said.
``What happens if it gets to 75/25 (screen volume versus pit volume), or where the pits are so wide that you can't get anything done? They'll force you onto the screen,'' the trader said.
``If you look at the business three, five, seven, 10 years down the line, at some point the floors will disappear,'' he said. ``So, if the banks and brokerage firms have to bet on a platform, they're betting on the electronic.'' |
