Posts Tagged ‘futures exchanges’

Welcome to Boca

Saturday, March 13th, 2010

Commodity Futures Trading Commission Chairman Gary Gensler has not endeared himself to the industry since taking the reins of the industry regulator. It has been an odd honeymoon as Gensler’s nomination was being held up by Senators concerned over his past advocacy of keeping over-the-counter trading free from direct regulation.

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Does size matter?

Tuesday, October 6th, 2009

CME Group has received a lot of honors since its IPO in late 2002 and generally is seen as a pretty forward looking company, so it was a bit of a surprise to see on a list of Chicago “worst boards”.

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Bye-bye BEX

Thursday, September 13th, 2007

The Boston Stock Exchange (BSE), a mutual organization that manages or regulates multiple ventures, announced Sept. 5 that it has discontinued the operations of the Boston Equities Exchange (BEX).

BEX was launched in August 2005 as an electronic stock exchange but failed to gain market share, according to BSE. BEX did not see significant gains during a summer of record trading volume.

The BSE will continue to be active in the marketplace and will support its remaining ventures including the regulation of the Boston Options Exchange (BOX).

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Sell me another…

Thursday, August 23rd, 2007

MMM. Hmm. The New York Mercantile Exchange (Nymex) has confessed — revealing in a statement that it is in talks with certain “parties” in regards to possible transactions, meaning a merger or sale.

The Nymex did not, however, name those parties, which are rumored to be the New York Stock Exchange (NYSE) and the Chicago Mercantile Exchange (CME) Group, neither of which are saying anything other than “no comment,” which surely means YES!

Speculation now lies in which exchange will end up the victor — seems to be NYSE Euronext at the moment.

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Cotton goes down, takes WEB ICE with it

Thursday, August 16th, 2007

Jurgens Bauer, a cotton trader at the New York Board of Trade – a regulated subsidiary of the Intercontinental Exchange (ICE) – is reporting that cotton prices went limit down today, and that the ICE trading platform (which lists Nybot’s contracts) went down with it.

“The only thing in the building that was going up today was the elevator. Even the escalator was broken on the second floor,” he wrote in an e-mail. More importantly, he writes that a serious flaw was exposed in ICE electronic trading platform: once cotton was offered at the limit, Web ICE shut down as a result.

“What happened was that trades on ICE continued to take place below limit. It was announced that any transactions that took place below limit would be nullified and canceled. This not only impacted out-right transactions, but also spreads in which one leg, or both, used inappropriate price levels. This created a nightmare for some, as they didn’t know their position. But worst of all, following the announcement trades below the limit continued to occur.”

More as the story develops.

Nymex launches ethanol swaps

Wednesday, August 15th, 2007

The New York Mercantile Exchange has launched two new ethanol swaps contracts to compete with ethanol swaps on ChemConnect, which was recently acquired by the Intercontinental Exchange (ICE) and CME Group’s ethanol futures and cash settled ethanol swaps, which it recently acquired by purchasing the Chicago Board of Trade (CBOT).

“It’s going to be interesting to see if there is enough interest to become viable contracts. I expect them to be more of a slow burn,” says Rick L. Kment, ethanol and biofuels analyst for DTN. “The thing that has made RBOB and crude oil so successful is not commercial traders, while they are an important part of it. It’s really the investment and the non-commercial trader that takes that offsetting position; and especially with swap contracts, that kind of limits itself to being commercially driven.”

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Nymex to move?

Monday, August 13th, 2007

The rumor is not only is the New York Mercantile Exchange (Nymex) looking to sell its building, but it could move to the New York Stock Exchange, which is already rearranging its floor for the new tenant. The NYSE in the run for Nymex is a bit of an oddity, with the most likely player for Nymex’s affection being the Chicago Mercantile Exchange or CME Group. Last November, prior to the InterContinental Exchange’s failed run at the Chicago Board of Trade, a CME official noted with confidence that Nymex would be the next target after the CBOT purchase was finished. Seems some at Nymex are hoping for it, especially floor traders who are said to be having a morale issue. Whatever happens it probably will be soon as Nymex is on a trajectory to sell its building and put itself on the block. With Nymex products trading on Globex already, CME Group seems the right fit, while Nyse/Euronext might be better off going after ICE.

Dueling spin

Monday, August 6th, 2007

One of the things I liked about working on the trading floor was no matter how bad of a day you were having, when the bell rang the day was over and after checking fills you could go home. Electronic trading and for-profit exchanges have changed all that, even the exchanges’ communications staff are working overtime.

An example of this is the two press releases we received over the weekend with varying interpretations of a Friday decision by the Delaware Chancery Court.

Both the Chicago Board Options Exchange and CME Group claimed victory in the battle over Chicago Board of Trade exercise right privileges (ERPs) after the court made its ruling. The court ruled in favor of CBOE, rejecting a motion by two CBOT members asking for a temporary restraining order to prevent CBOE from enforcing rules restricting leasing privileges of CBOT members. The court also granted a CBOE request to suspend proceedings until the Securities and Exchange Commission (SEC) takes action on the CBOE rule changes that claim the CME/CBOT merger extinguishes the CBOT member ERPs.

While apparent victories for CBOE, the court also offered an opinion on its authority to rule on the CBOT complaint regarding the exercise right. The opinion states, “Despite the CBOE’s urgings to the contrary, the Court retains jurisdiction to determine whether the Defendants’ actions have the operative effect of divesting the Plaintiff-class of a vested economic and property interest.”

So there will be no restraining order and the Delaware Court will wait on an SEC decision before taking up the case. As far as the spin coming from each exchange, we won’t attempt to offer a legal opinion. The market however appears to be siding with the CBOE interpretation as a CBOE seat traded today for a record $2.7 million.

Trading floors on the way out, really

Thursday, August 2nd, 2007

At least that’s what it seems like in New York, where Nymex Holdings, the parent of the New York Mercantile Exchange (Nymex), is slashing costs through the next three months, specifically targeting the population of its trading floor, which has seen volume dwindle as more contracts are traded through an electronic alliance with the Chicago Mercantile Exchange (CME).

Floor trading volume dropped by half in the second quarter of 2007 compared with last year, when Nymex agreed to start trading its contracts on the CME’s Globex electronic system. Energy futures and options volume averaged 257,000 contracts on the Nymex in the second quarter, compared with 537,000 in the same period last year. Meanwhile, electronic trading volume soared more than 400%.

Nymex Chairman Richard Schaeffer indicated in a conference call this week that changes involving the trading floor may be coming sooner rather than later. A Forbes story quotes Schaeffer as saying, “These [changes] aren’t things that are going to be put off for six months.”

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Something has got to give

Wednesday, July 25th, 2007

There is a strange anomaly going on with the dance between the Chicago Board Options Exchange, Chicago Board of Trade members and the newly formed CME Group.

Theoretically the closing of the merger between the Chicago Mercantile Exchange and CBOT should have negatively affected the value of CBOE seats but CBOE announced a record seat sale of $2.65 million yesterday. After all the Intercontinental Exchange (ICE) had worked a deal with the CBOE that if approved by CBOT members would have put a definitive price on the value of exercise right privileges (ERP) on CBOE held by CBOT members. In outbidding the ICE, the CME took off the cap on funds it would dedicate to defend those rights. Additionally CME Group pledged yesterday to “vigorously defend the right of CBOT B-1 members in the Delaware litigation against CBOE.”

The CME Group release goes on to say, “We will continue to work to preserve the rights of CBOT members to become or remain exerciser members of the CBOE pursuant to the exercise right and to share equally in any CBOE demutualization (ital. mine).”

The term “equally” is an important one. There are 1,331 ERPs out there and approximately 827 CBOT members holding all of the necessary components to use the right. But we are not talking about using the right, we are talking about equity in a demutualized CBOE. A CME Group spokesperson says only those members with all the necessary components would be eligible to retain the right pursuant to the Delaware court action and qualify for equity in a CBOE demutualization but that a record date would be set in the future and members would be able to reassemble components to qualify for a stake. There are 930 CBOE members, if an additional 827 ERP holders (and possibly many more) qualify for a full share stake in a CBOE demutualization, current CBOE members would see their share stake cut by nearly half, or more.

To give a little perspective, the first CBOE seat sale in 2007 was for $1.8 million and a seat went for a low of $850,000 as recently as January 2006.

So why did a CBOE seat sell for a record $2.65 million? With seat prices continually rising throughout the ICE/CBOE negotiations, there probably is a CBOT member equity stake in CBOE worked into the price of CBOE memberships. But if that is the case that price is probably the equivalent to the CBOE offer, which was roughly 10% of a CBOE full member not including the ICE share. A source with an interest in the value of both CBOE and CBOT told Futures prior to the CME/CBOT merger vote that the street was valuing the ERP at 20-25% of a CBOE membership. The assumes that ERP holders would eventually be awarded equity in CBOE equivalent to 20-25% of what a full CBOE member gets. If somewhere between 827 to 1,331 ERP holders are awarded a 100% share of what the 930 CBOE members will receive, that would make the most reason sale a pretty bad investment. However, the market is usually right and if the CBOE wins the court battle and the rights are extinguished completely, that $2.65 million price tag will be the bargain of the century.