The ringing of a bell in the pits of the Chicago futures exchanges used to signal the close of trading. Now many brokers never hear that bell. They’re trading on computers, watching the bids and offers move across their screens even after the trading pits close.
“It’s 24 hours now,” said Michael Manning, president and chief executive officer of Rand Financial Services Inc., a broker based in Chicago. “Technology is the reason.”
Three decades ago, when Manning started in the grain trading pits at the Chicago Board of Trade, his workday was 9:30 a.m. to 1:15 p.m., and “then as long as it took to clean up every day.” That meant he was often bound for home at 2 p.m., and the stability of the market suggested he could get a good night’s snooze.
Today brokerages like his have to be staffed 24 hours a day. And there are sleep-jarring calls in the middle of the night when trading on a foreign exchange unexpectedly jumps or dips a large amount.
Sunday night Eurex US–a subsidiary of German-Swiss-owned Eurex AG, the world’s biggest futures exchange–will launch trading in U.S. Treasury futures, a product that until now has been almost exclusively traded at the Chicago Board of Trade.
Eurex’s efforts to establish a beachhead in the United States have, at times, been portrayed as an invasion by a foreign competitor. But in many ways it’s a response to inroads the Chicago Board of Trade and Chicago Mercantile Exchange already have made in Europe and elsewhere, particularly with electronic trading that has brought in more global participants.
Last month the Board of Trade moved its European office to a new, larger London location, called part of plans to “leverage growth opportunities in Europe,” according to a senior CBOT official. Then last week the exchange announced it would trade German debt, pending the approval of U.S. regulators.
The Board of Trade recently signed an agreement with China’s Dalian Commodity Exchange to pursue joint efforts, and this month rolled out a program with lower fees for European traders accessing the CBOT electronically.
Since the 1980s the Chicago Mercantile Exchange has been aggressive in establishing relationships with foreign exchanges and trading the interest rate futures of major currencies. A recent William Blair & Co. analysis of the Merc’s financial performance found it is “quietly on the offensive moving into the backyard of European exchanges.”
The newest such product debuts later this month when the Merc launches Japanese-yen denominated Nikkei 225 stock index futures, the first time the contracts will trade during non-Asian business hours. On Friday, the Merc announced a new program with lower fees for banks and hedge funds located in the Pacific Rim.
The European-U.S. back and forth continues. While not as aggressive as Eurex’s move into the United States, the London International Financial Futures and Options Exchange is attempting to grab business away from the Merc by offering eurodollar contracts beginning next month.
The goal of all the exchanges is to increase liquidity–having the most customers trying to buy and sell.
Time zones, exchanges and products are all blurring, said Craig Donohue, chief executive of the Merc. His exchange offers trading 23.5 hours a day, the longest of the world’s major futures exchanges.
“All the markets are linked now,” he said. “If something occurs during the business day in Asia, it will affect Europe and it will affect the United States. And people understand how to protect and mitigate their risk.”
That means placing an order on one exchange, but balancing it with a position in a related security. Such global scenarios are largely limited to futures contracts. Legal and political roadblocks have, for the most part, prevented stock markets from marketing equities to people in other countries.
Even traders focused only on U.S. markets can’t afford to ignore what’s happening elsewhere, said Harris Brumfield, head of Trading Technologies International Inc. Based in Chicago, his firm’s software allows a trader’s screen to display in one place products at a variety of exchanges.
“Competitively, you have to keep in touch with other markets, that’s for dead sure,” he said. “Even if you’re just trading the U.S. market, you better know what’s going on over there. Because something big happens over there, and they come hedging like crazy into the U.S. markets.”
Hedge funds play a role
Increasing globalization prompted London-based broker ICAP PLC to get into the futures markets. Now a major player in the cash markets, its customers are hungry for worldwide futures trading, said Michael Spencer, ICAP chief executive.
“It’s a global trend, not a revolution,” Spencer said, noting the globalization of banking.
“Let’s remember now that over the past decade we have seen the emergence of a hugely greater risk-taking appetite from the hedge fund industry,” he said. “The hedge fund industry has deployed vastly accelerating amounts of capital that is searching for opportunities progressively on a global horizon.”
