So is computerized trading better than traditional open-outcry? In France, the answer appears to be oui.
Two weeks ago, the Matif exchange in Paris began trading its major futures products on a computer screen at the same time they were available in the pits.
Within the first 24 hours, a winner emerged: About two-thirds of the volume immediately migrated to the screen. Since then, all but 10 percent or so has moved over.
“The trend is definitely toward the electronic,” a Matif spokesman said.
Matif’s option contracts will be computerized within a few months, and its trading floor could be shut down altogether shortly after that, the spokesman said.
The news from Matif has big implications for the London International Financial Futures Exchange, which has asked its members to approve a similar plan for trading simultaneously in the traditional pits and by computer. In light of Matif’s experience, LIFFE members can safely assume that a vote in favor of trading both ways is a vote against open-outcry.
And Chicagoans who want to preserve the shouting and arm-waving of open-outcry should take note as well. For the second time in a year, a major pit-traded bond contract has shifted smoothly to the screen.
Beginning last summer, the all-electronic Deutsche Borse of Frankfurt took over the German bund from LIFFE. And now the No. 1 Matif contract, French government bonds, has moved to the computer without a hitch.
That was no surprise to Arthur Moore, a Chicago Board of Trade veteran who now heads the Marquette Electronic Brokerage.
Pit-traded contracts with a higher proportion of options strategies and spread-trading tend to be more difficult to translate into an electronic marketplace, Moore contended.
But for relatively simple contracts, such as the Board of Trade’s No. 1 U.S. Treasury bond futures, the screen may well beckon, he said. “The bund and potentially the bonds are made for electronic trading.”
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As part of a sweeping reorganization, the LIFFE is mulling a plan to raise nearly $1 billion by selling shares to the public.
LIFFE’s chief European rival, Deutsche Borse, also has considered going public, though its officers say they have no plans in the works.
For years, the idea of a public, for-profit exchange has intrigued Chicago futures-market leaders, but the tax consequences have weighed against it. Now, the corporate model looks more appealing than ever, in spite of the tax bite.
If electronic trading replaces open outcry, the thinking goes, proceeds from a public offering could be used to buy out memberships, giving floor traders a graceful exit. Mergers, too, could be facilitated through a public structure.
Dow futures past? It’s no secret that futures and options on the Dow Jones industrial average have failed to meet the rosy expectations that preceded their introduction last year.
But at the Chicago Board Options Exchange, they have outperformed in at least one respect. Some 35 percent of the open-interest, or the number of Dow Jones contracts held overnight by investors, is concentrated in the long-term options known as LEAPs.
In contrast, just 21 percent of open-interest in index options overall is held in LEAPs.
The data show that Dow Jones investors are taking the long view, said CBOE Chairman William Brodsky. “They buy it and they hold it.”
Now, if they’d just buy more. Average daily volume in the Dow contract remains a disappointing 16,000. “I’d like to see it do better,” Brodsky said.