CME/CBOT Traders embrace deal even if it hastens floor closure
(Crain’s) — The Chicago Mercantile Exchange’s $8-billion purchase of the Chicago Board of Trade may mean a quicker than expected end to the face-to-face style of trading that has characterized buying and selling of futures since their U.S. start in 1848, traders say.
But most traders — including those on the floor — are embracing the deal, despite the potential for higher fees, in no small part because many also have shares in the exchanges they received when the markets converted from member-owned clubs to stock-based companies.
“I pay a lot of fees at the CBOT and the Merc. I happen to own stock at these places as well,’’ says Ray Cahnman, chairman of Chicago trading firm Transmarket Group, who trades electronically on both Chicago exchanges as well other global futures markets. “I love being a shareholder of a business where you’ve got complete control of your costs, where the volume has enormous potential to expand and demand is snowballing and the incremental costs for adding on new volume is pretty minimal.”
Under Tuesday’s proposed deal, the Chicago Merc will shut its trading floor and move operations to the Board of Trade’s bigger trading arena when the transaction is completed in the middle of next year, the exchanges said.
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While the majority of futures trading at both exchanges now takes place electronically, buying and selling of options on futures is still largely a floor-based business because the contracts require complex trading strategies that are hard to replicate by computer.
Both exchanges have been beefing up their electronic trading systems to better handle options. Now with the merger, brokerage firms will likely take the opportunity to trim staff and encourage more trading on the screen.
“The floor’s demise is hastened’’ by the decision to move the Merc’s floor trading operations to the Board of Trade, says Mr. Cahnman, “Why would anyone want to open up trading operation there when they know it has such a short life?’’
Already traders are making the move “upstairs’’ to trading desks, away from the once-raucous pits. John Brady, who has spent 10 years as a broker on the Chicago Mercantile Exchange’s trading floor, is giving up the lease on his pit-side booth at the end of the month, a decision he made before the merger was announced.
“I think we’ll see more guys move upstairs, as well as out of the business,’’ he said.
Doug Warner, a broker for Man Financial at the Chicago Board of Trade, has seen futures trading on the floor sputter to a near-halt, even as options trading thrives.
“I’ve gotten comfortable with a little more elbow room here,” he says. Once Merc traders move over, “things will be a lot more lively. I’m able to use this as my office, and it’s in fact rather cheap office space that all of a sudden gets more expensive. Certainly there’s going to be more demand for space.”
Mark Hawkinson, a broker for Fimat at the Chicago Mercantile Exchange, says he doesn’t believe the exchange is bent on closing any floors.
“I think they move everyone to the same floor and the pits flourish,’’ says Mr. Hawkinson, whose booth at the CME overlooks the trading pit for Eurodollar options, the exchange’s most popular floor-traded contract.
The merger may also give traders more opportunity to trade a wider variety of contracts at the same time, Mr. Brady says. “They’ll have the best of both worlds-the premier electronic trading platform and the premier trading floor,’’ he says. |
