CBOT to challenge Nymex on metals
By Jeremy Grant in Chicago
Published: May 19 2004 22:01 | Last Updated: May 19 2004 22:01
The Chicago Board of Trade plans to launch electronically traded gold and silver futures contracts in a move that could challenge the New York Mercantile Exchange's global leadership in precious metals, derivative exchange sources said.
The move comes as the world's largest derivatives exchanges battle for dominance of the trading in futures and options amid unprecedented demand for such products from corporate risk managers, mutual funds and hedge funds.
The CBOT's plans signal that this battle is starting to involve rival exchanges in the US, as well as efforts by European exchanges to break into the US. In February, Frankfurt-based Eurex started a US futures exchange that has been competing with the CBOT in financial futures.
The CBOT, the second-largest US futures exchange by volume, already offers mini-sized gold and silver futures contracts targeted at retail investors on an electronic trading system.
It plans to add standard-sized gold and silver futures contracts on the same system in the autumn and are likely to be cleared through a "common clearing link" between the CBOT and Chicago Mercantile Exchange.
"These contracts will be fully electronic and for the first time in the metals market you have the ability to trade them electronically and have all the advantages of straight-through processing," said one exchange source. Straight-through processing is the completion of a derivatives transaction from trading through to clearing and settlement.
The CBOT's plan would be a challenge to Nymex because the New York exchange is the world's largest gold and silver futures exchange. Yet about 95 per cent of trading in Nymex gold and silver is done "open outcry" in trading pits.
Electronic trading is generally cheaper for the end-customer than open outcry, helps rapid execution of hedge-related trades and is better able to cope with high trading volume.
Trading of financial futures at the CBOT is at record levels, largely due to the exchange's adoption of electronic trading for such products in 1998.
The CBOT also plans to offer other metals such as copper and platinum early next year, the source said. That could pose a threat to the London Metals Exchange, which dominates global trading of such products.
Robert Ray, the CBOT's senior vice president of business development, declined to comment on any specific plans for gold, silver or copper. But he said: "We are exploring growth opportunities in this sector."
As a first step, the CBOT on Wednesday said it would switch from using the Nymex's gold and silver futures contract prices as a basis for settlement of its mini gold and silver contracts. Nymex three weeks ago demanded that the CBOT "cease and desist" from using its prices in this way.
Nymex said on Wednesday: "Our settlement procedures were developed and honed after years of effort and we don't believe they should be available to competitors for use on competing products." |
