In a milestone for electronic trading, the Chicago Mercantile Exchange on Tuesday launched its new, smaller futures contract on the Standard & Poor’s 500.
Some 7,987 “E-Mini” contracts were traded, including 7,021 on a computerized system for filling small orders. The remaining 966 went through an open-outcry system required for larger orders exceeding 30 contracts.
Tuesday’s session marks the first time a major futures contract has traded via computer side-by-side with open-outcry during daytime hours.
Exchange officials had said they expected modest turnover, partly because the electronic system doesn’t lend itself to the first-day burst of action typical of new open-outcry pits.
“Normally, we can cram a bunch of traders into a pit and say, `Trade,’ ” said Merc Chairman Emeritus Leo Melamed. “We can’t do that with this.”
Tuesday’s volume reflects strong customer demand rather than just trading among locals to generate the appearance of interest, added Chairman Jack Sandner. “This volume is pure, real volume. It far exceeded my expectations.”
The final tally was the best first-day showing by any currently listed Merc contract. In the futures business, viable contracts usually generate average daily volume of 5,000 or more.
Sandner and Melamed are betting the mini-S&P will attract retail customers and small-time professional traders who can’t afford to use the Merc’s full-size S&P 500 contract.
Each “E-mini” is one-tenth the size of the larger stock-index contract, with an underlying value of about $47,000. Customers can trade it by posting a performance bond, or margin, of just $2,100.
That’s a perfect size for small players, who cannot afford the bigger contract, said Barry Lind, of Chicago futures discount firm Lind-Waldock & Co. “Most of my customer base had been disenfranchised,” he said.
Merc officials also are counting on the E-mini to blunt competition from futures on the Dow Jones industrial average being launched next month at the Chicago Board of Trade. Both products are aimed at a similar retail customer base. The Merc announced plans for its “E-Mini” only after losing a bidding war for the Dow license.
Sandner, for one, said he’s not worried. “We believe the S&P is the better product because it’s the true benchmark of the U.S. equity market,” he said.
The Merc spent an estimated $10 million on the E-mini launch, including marketing and hardware, sources said. The exchange has installed 51 new Globex terminals on its floors.
Already, some traders believe the exchange should eliminate the restriction on the size of “E-mini” orders that can be filled via computer.
The 30-contract limit is “a mistake,” said Howard Simons, director of research at FIMAT USA. “It sounds like we’re afraid that in competition, electronic trading will be preferred to pit trading.”
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