Electronic trading is dealt a double blow
By Jeremy Grant and Alex Skorecki
Financial Times; Jul 12, 2002
Attempts by two of Chicago's derivatives exchanges to come to grips with electronic trading faltered yesterday as the Chicago Board of Trade and Eurex, the German-Swiss exchange, said they had unravelled their joint venture electronic trading platform.
The development came a day after The Chicago Mercantile Exchange's ambitions to expand electronic trading were dealt a blow after it revealed that its flagship Globex platform had failed to cope with recent surges in futures volume.
Under a new deal struck between Eurex and the CBOT, both sides have ended a long-running dispute about the future of the a/c/e trading platform, established in 2000.
The joint venture marked the CBOT's first serious move into electronic trading.
However a/c/e had been dogged by disagreements between the partners, largely over the size of further investments needed to expand the system. a/c/e operates alongside "open outcry" in the CBOT's trading pits and accounted for 36 per cent of total CBOT trading volume in June, against 21 per cent a year ago.
A new alliance, agreed yesterday, calls for Eurex to take over the platform, which is used to trade US Treasury bill futures. The CBOT will become a licensee.
The agreement ends in 2004, earlier than the original joint venture would have done.
Abandoning the terms of the original deal will free Eurex, owned jointly by Deutsche Býrse and SWX Swiss Exchange, to move into certain dollar-denominated financial futures products in the US after 2003. CBOT will similarly be able to move into European-currency products.
Rudolf Ferscha, chief executive of Eurex, said the joint venture had been unnecessarily restrictive to both sides, holding them back from entering markets to the advantage of competitors.
David Vitale, chief executive of CBOT, said: "The world has changed since four or five years ago when the alliance was set up."
CBOT said it would use its new freedom to explore the market for single stock futures. Along with Chicago's two other main derivatives exchanges it has formed OneChicago to trade these products, which are about to be given regulatory clearance in the US.
However, the break with Eurex leaves the CBOT without a firm base on which to develop an electronic trading platform of its own.
Brokers say it needs such a platform if it is to offer new products competitively in an environment where customers are increasingly demanding that trading is done electronically. "The CBOT's going to have to do something in terms of finding a new platform," said one user of the CBOT. "The business is going electronic, they need their own matching engine."
However, Mr Vitale said: "We are not in the technology business. We will not be building a platform."
The Chicago Board Options Exchange and the CME have developed their own electronic platforms, although the CME is furthest advanced with its 10- year-old Globex system.
Globex's failure to cope with recent record volume on the CME's flagship eurodollar contract has forced the exchange to delay until October the introduction of its "Eagle Project", which had been scheduled for next week.
The project would allow the trading of calendar spreads electronically on Globex for the first time. Calendar spreads are a complex trading strategy in the trading of eurodollar futures contracts.
Separately, the CBOE said it planned to launch by the end of this month a new electronic trading function that would allow customers to trade equity options without the need to enter trades manually.
Bill Brodsky, CBOE chairman, told the FT that a new "point and click" function would allow customers to access electronically a complete range of prices offered in the trading pits.
"We're taking the depth and liquidity represented in a crowd [of traders] so that it's accessible electronically in a way that it doesn't have to be verbalised," he said. |
