One of the Chicago Mercantile Exchange’s worst nightmares is set to materialize just after Halloween.
The computerized trading system of the EBS Partnership will be targeting the Merc’s flagship Eurodollar futures. The looming battle is reminiscent of New York trading firm Cantor Fitzgerald’s assault on the Chicago Board of Trade’s Treasury futures earlier this year.
Even if EBS doesn’t take over the business, as Cantor hasn’t, it seems certain to force change. At a minimum, it will shape the Merc’s coming strategic plan, which is supposed to address the competitive questions posed by electronic trading.
So far, the Merc’s nemesis has been a quieter competitor than feisty Cantor.
EBS, a London-based coalition of 14 banks, has operated a successful electronic foreign-exchange spot brokering system since 1993.
In early November, it plans to launch Forward-Rate Agreements, or FRAs, a Eurodollar futures substitute, a spokesman said. “If our experience in the spot market is repeated, we expect to obtain a significant market share.”
Just as the CBOT tried to use the Commodity Futures Trading Commission as a shield against Cantor, the Merc has asked the regulator to block EBS. For now, the system won’t be launched in the U.S., even though its shareholders include Bank of America, Citibank and other big domestic players.
Still, those banks might use EBS from their offices in London and elsewhere overseas. And the system’s trading costs promise to be much cheaper than those of Chicago’s open-outcry markets.
One big difference: EBS won’t offer a centralized trade-clearing system, so concerns about counter-party credit risk could limit its acceptance. The Merc can only hope.
Hitting singles: As one of the futures industry’s bona fide visionaries, Richard Sandor identifies the “megatrends” that will shape the business in coming years.
Technological change is an obvious one. Along with many experts, Sandor, who heads the Board of Trade’s strategy committee, expects the computer to take over financial futures trading someday.
Consolidation is obvious, too. As the industry continues to mature, exchanges and trading firms will combine through mergers, alliances and takeovers, he and others predict.
But Sandor also foresees what he terms “deconstruction”–a trend that could pay off in the same way Pete Rose became a star on the baseball diamond by hitting a lot of singles.
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Forget about launching the next bond contract–the flagship, franchise-making home run. Instead, the future belongs to smaller contracts tailored to smaller user groups, Sandor said during a speech to foreign journalists last week. “We’ll have 50 of those instead of one bellwether.”
Hopeful? Well, better deconstruction than dissolution.
Before the fact: Rodman & Renshaw Inc., the Chicago brokerage company that filed for Chapter 7 bankruptcy liquidation and shut its doors in March, apparently got a boost into oblivion from the National Futures Association.
The NFA announced Sept. 22 that it had barred Rodman from the business–timing that suggested it had acted months after the fact.
But in a letter to this column dated Oct. 9, NFA President Robert K. Wilmouth said his self-regulatory group began its action against Rodman in November 1997–four months before the company filed for bankruptcy.
At that point, Rodman still carried customer accounts, Wilmouth said, and was “very much a going concern.” As it turned out, it just didn’t get very far.
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E-mail Greg Burns at [email protected].
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