At one level, the Chicago Board of Trade’s deal announced last week with the German and Swiss exchanges of Eurex is admirably expedient.
Rather than spend a fortune to upgrade and distribute its own after-hours computer-trading network, the Board of Trade will adapt to Eurex. As exchange Chairman Patrick Arbor put it: “It gets us where we want to be a lot sooner.”
To some, the deal has more far-reaching consequences. By allowing users access to both markets on a single screen, the exchanges could be paving the way for an eventual merger, some say. Indeed, the Board of Trade has an option to become an equity partner in Eurex.
And if electronic trading ever replaces open outcry, linking with the successful screen-based Eurex would ease the Board of Trade’s transition.
Imagine a world in which all futures contracts trade on one screen. As Jorg Franke, boss of Eurex partner Deutsche Borse, admitted: “It’s a goal.”
Of course, not everyone invests the Eurex-CBOT deal with so much significance.
The London International Financial Futures Exchange, for example, unsuccessfully tried to persuade the Board of Trade to develop its own system. As screen-traded markets become accessible to any personal computer over any network, the CBOT-Eurex deal will be superseded, said LIFFE chief Daniel Hodson. Thus, joining a conglomerate won’t be necessary to gain distribution.
LIFFE, which saw an open-outcry link with the Board of Trade fail last year, is committed to building its own wide-open trading system over the next 18 months. But that was too long to wait for the Board of Trade.
Question of trust: To hear Doug Bergeron tell it, only good would flow from the proposed merger of SunGard Data Systems with Rolfe & Nolan, the futures industry’s only other sizable back-office systems vendor.
The consolidation, now under government antitrust scrutiny, would form a software provider strong enough to make big innovations, said Bergeron, who heads SunGard’s Chicago-based futures unit. And besides, he said, the barriers to entry are so low that competitors could pop up at any time.
Nonsense, countered Paul Cleaver, global head of futures and options operations at Deutsche Morgan Grenfell in London.
Because of the increasingly global business of big trading firms, “It’s much harder to enter the market today,” Cleaver told Bergeron at a panel discussion at last week’s futures industry meeting here.
Further, the lack of competition would stifle innovation, Cleaver predicted. “We’ll see a general degradation,” he said. “(SunGArd officials) will make us eat whatever they want to give us.”
Easier screening? As an increasing share of global futures trading shifts to the computer screen from the traditional open-outcry pits, the head of the Commodity Futures Trading Commission, Brooksley Born, sees at least one advantage.
“It may well be much more efficient to monitor an electronic exchange,” she said. “It should be very possible to have a very detailed record and audit trail.”
Watch for the CFTC to relax rules for on-screen dual-trading, when brokers trade for their own accounts while also handling customer orders. In the pits, that practice is linked to fraud.
Other regulatory changes tailored to the screen could follow.
