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I have been waiting for months now for the CME to deploy more CUBS2 terminals
on their trading floor. I just received a memo today that my FCM had made
arrangements with a broker group, actually two broker groups in a joint
effort, to deploy a CUBS2 terminal in the S&P pit starting on March 23.
Market orders only to start, which is the standard startup procedure I have
seen before with Electronic Clerk terminals at the CBOT.
By way of disclosure, I run the Electronic Trading Division of The Price
Futures Group, Inc. and we use TOPS and have an Internet system (CME-IOR)
which uses TOPS. TOPS routes to the CUBS2 terminal among other places.
I had heard that the CME wanted to deploy 200 of these machines by the end of
1999. I don't know that they will get there, but if this works in the S&Ps I
would suspect that different floor broker groups would be deploying them in
various pits soon enough. One estimate I heard was for Nasdaq and Live Cattle
CUB2 units to be deployed in 6 weeks if the S&P setup went well.
Right now this new CUBS unit will only be accepting orders from my FCM (ED&F
Man), but I am sure other FCMs will be not far behind. Currently there are
two other CUBS2 machines in the S&P pit (LFG and Lind) and one in the Lean
Hogs (accepting orders from multiple houses). We use the LH unit, but it has
been up and down recently for different reasons.
One of the problems with this technology, because it does fail occasionally,
is who takes responsibility for the failures. The CME has said not them. So
far the FCMs have been stuck with the bill. But as these machines are
increasingly deployed, it is my guess the risk will be shifted somehow more to
the customers, particularly for Internet traders.
When one of the CUBS2 or EC terminals goes down, the working orders need to be
printed out. At the CBOT, a single sheet is printed with a list of the
orders. The CME prints all the orders, I think. Regardless, these new
orders need to be organized into a deck, which could be done by the system.
But, the orders still need to be inserted into existing order deck. All this
takes time and can cost money for missed fills. And no printer is fast enough
in some conditions.
I heard a story from the CBOT that an EC terminal going down in the soybeans
recently cost one FCM $10,000 for a 10 minute outage. Lots of risk with this
stuff. Theoretically this type of technology is supposed to save money.
However, it is a little like selling options naked short. You make money,
here and there, then whammo, you get a glitch and get hit.
Why do you see further consolidation in the futures industry, particularly
with some of the firms deep into electronic futures trading? Because the risk
dynamics have changed and firms need a bigger balance sheet behind them so
they can manage the risk better. Sure technology is expensive, but risk is
more expensive and capital intensive, IMHO.
I have been using TOPS since 1995 and the EC terminals since the first pilot
programs. The problems I personally have encountered have not been too bad.
I hope that trend continues. But, I still watch it very carefully because
*glitch* is a very costly word.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
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