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Folks:
I spoke with my friend--He runs Chicago Corp's futures for ABN-Amro.
He told me that Cantor Fitz and the new York Board of Trade have several
problems they must solve before this new bond contract will be viable. Their
first problem is that almost all of the US futures FCMs use a clearing program
called GMI. Cantor Fitz is not using this protocal, and so many of the FCMs
really can't clear the business as it stands now [or they have to do clearing
manually, which is a nightmare].
Second, this new contract is only accepting 'market' orders. Combine that with
the average spread, which is running at around 4/32's in and 4/32's out, and the
thinness of the market [less than 100 contracts traded yesterday].
Last, these new contracts are not deliverable and not fungible, so if you did
put a position on and decided you wanted out, you have to either exit on the new
exchange OR leg one side out and then leg the other side out.
So I think the CBOT is dragging their feet and if they aren't careful, they
might get left behind...But ONLY if Cantor and friends wake up and make this new
contract worth trading. I spoke with a friend at lunch that runs a multi-billion
dollar bond fund and he told me he had poked around the first day and then
decided that even if he was able to sell on his offer and then buy on his bid on
the CBOT market, the delivery problem makes it not currently not worth the
hassle.
Best,
Tim Morge
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