Now that the Chicago Board of Trade has gotten its futures contract on the Dow Jones industrial average off the ground in an open-outcry extravaganza, can an electronic version be far behind?
The exchange already is pushing Dow Jones to grant it the license for trading Dow products in off-hours over the Project A computer system.
“We would love to trade the Dow on Project A,” said CBOT President Thomas Donovan.
By keeping futures on the Dow indexes with one exchange, they would always trade under consistent rules and on a single clearing system, he said.
At the same time, though, Donovan acknowledged that Dow Jones & Co. could probably make more money upfront by selling the licensing rights to the highest bidders among Asian and European exchanges. “The temptation is great to get licensing fees around the world,” he said.
Dow Jones has said it won’t make a decision on trading the contracts during off-hours until January at the earliest.
Donovan’s comments came as the CBOT proceeds with an upgrade of Project A to make it more “robust.” The idea is to increase its capacity to handle more trades, and upgrade functions, including options on futures capability.
The exchange is expanding the system to London by year’s end, and other overseas locations could be in the offing.
Some 3.97 million contracts traded over Project A in the first nine months of the year, up from 1.65 million in the same period of 1996.
What, me worry? At least Michael Braude of the Kansas City Board of Trade has faith. Even as competition from over-the-counter dealers pushes the futures industry toward computerization, the 62-year-old Braude believes he’ll be safely retired before electronic trading takes over for open-outcry. “I guarantee it won’t happen on my watch,” Braude proclaimed.
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Ventures like the New York Cotton Exchange deal with Cantor Fitzgerald, aimed at trading bond futures over a screen, don’t represent a genuine competitive threat, Braude said.
“They’re going to have a hard time competing with the CBOT,” he predicted. “The financial floor is pretty well established. If it ain’t broke, don’t fix it.”
And after all, just take a look at the new $180 million temple to open outcry the Board of Trade opened on La Salle Street earlier this year.
“If electronic trading was going to be such a big deal, do you think they’d have that big building you can park a 747 in?” Good question for the Board of Trade to ponder as it makes those mortgage payments.
What loss? Losing the bidding war for the license to trade the Dow futures contract might not hurt the Chicago Mercantile Exchange as much as once believed. The electronic version of the Standard & Poor’s 500 contract, which the Merc introduced Sept. 9 to compete against the Dow, looks like a winner in early returns.
The Merc’s “E-mini” futures and options finished the month with an average daily volume of 11,862 contracts. That’s more than double the 5,000 considered necessary to make a contract viable.
Crackdown on Carrington: After years of trying, the Commodity Futures Trading Commission has finally lowered the boom on Carrington Financial Corp.
The federal regulator first accused the Florida-based trading company of bilking customers in 1991.
Last Monday, a federal judge, citing fraud and improper sales practices, placed the firm in receivership and imposed a sweeping judgment ordering it to cough up unlawful gains, the CFTC said.
Under terms of the judge’s order, all profits made by the firm and a predecessor known as Trinity Financial Group over their years of operation are supposed to be disgorged.
The CFTC estimates the firms and their key executives are on the hook for “substantially more than $10 million.”