Chicago Mercantile Exchange, Board of Trade Complete Futures Clearing Link
Jan. 2 (Bloomberg) -- The Chicago Mercantile Exchange and the Chicago Board of Trade, the two biggest U.S. futures markets by transactions, today completed a link the exchanges say will save brokers and traders as much as $1.6 billion.
The Merc, as the exchange is known, began processing and guaranteeing some Board of Trade futures and options on Nov. 24, and last night began doing so for the rest. The Chicago-based Clearing Corp., which had handled the Board of Trade's business for 78 years, today transferred all open Board of Trade business to the Mercantile Exchange.
The arrangement between the Chicago exchanges reduces the amount of money traders must put on deposit to guarantee their transactions by $1.4 billion, because trades made at one exchange can offset those made at the other. It also lowers by about $200 million the amount of money brokers must put up.
``I've been very supportive of the link from day one -- it's a good thing for the industry,'' said Michael Dawley, a vice president of Goldman, Sachs & Co., the biggest U.S. futures broker by amount of customer funds. Dawley is also chairman of the Clearing Corp., which lost its biggest customer when the Board of Trade switched to the Merc. ``Firms and clients will benefit.''
The Merc is home to Eurodollar futures, which gauge expectations for three-month interest rates. The Board of Trade offers futures on U.S. Treasury contracts, which last night began clearing through the Merc. Futures are agreements to buy or sell assets at a set date and price; options are the right to do so.
A trader who buys 50 Eurodollar futures at the Merc and sells 20 10-year note futures at the Board will put up $14,000 today. The same investor needed $70,000 needed on Wednesday.
`Competitive Advantage'
The link makes the Mercantile Exchange the biggest clearinghouse in the world. The Merc and the Board of Trade together handled more than 1 billion contracts last year.
``Every large benchmark futures and options product in the U.S. is cleared at the CME,'' said Chief Executive Craig Donohue, who spent his first day on the job yesterday watching over the transition. ``You can't get that anywhere else.''
The Board of Trade turned to the Mercantile Exchange in April after the Clearing Corp. declined to end talks to handle business from Frankfurt-based Eurex AG.
Eurex this year plans to start a U.S. exchange offering U.S. Treasury futures to compete with the Board of Trade. The Clearing Corp. will handle its trades. Eurex also plans a link between the Clearing Corp. and its Frankfurt-based clearinghouse to reduce traders' costs.
Contracts
The first transaction on the Chicago link last night was the sale of 11 U.S. Treasury futures for March delivery at 7 p.m. Trading in Treasury contracts accounts for about 78 percent of the Board of Trade's business.
The Mercantile Exchange, which gets a set fee per contract, said in April that the agreement with the Board of Trade will add $10 million to $15 million in net income this year.
The projection was made when the Board of Trade was handling 1.6 million contracts daily. Last year, the Board handled about 1.8 million contracts a day.
Also last night, the Board of Trade completed its switch to an electronic trading system made by Euronext.liffe, from one developed by Eurex.
Eurex and the Board of Trade will be free to compete by offering each other's contracts on Feb. 1.
Last Updated: January 2, 2004 11:52 EST |
