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TOPS demise has been prematurely predicted. The order routing system,
owned and operated by the Chicago Mercantile Exchange and the Chicago
Board of Trade, has had its death prematurely predicted because of the
ongoing development of the FIX API at the CME, fissures in the CME's and
CBOT relationship and because of the gains of electronic trading
worldwide versus open outcry markets. The predictions of the demise of
TOPS are greatly over-stated and here is why.
First off, volume flowing through TOPS is growing, not dwindling. And,
the numbers are impressive. In January of this year CME hosted TOPS
firms generated 400,000 orders. In March it handled 600,00 orders and
in October it handled 700,000 orders. Of those 700,000 orders in Oct.,
450,000 were filled totaling 900,000 contracts.
Secondly, TOPS is an integral part of the growing E-mini phenomena at
the CME. The CME traded 1.2 million E-mini S&P contracts in October
alone. Of those, 250,00 or about 1/3 were originated from TOPS related
order entry systems.
Thirdly, TOPS has functionality specifically suited for open outcry
trading that has not been replaced, recreated or reproduced by newer
technologies. Most of this functionality is related to the broker side
of the systems, not the customer side, but it is no less important.
TOPS is a mature technology doing a lot more than it was intended to by
its designers. However, because of the huge number of contracts it
handles, it has reliability and service records that are hard to match
by other U.S. based order routing systems.
This is not to say there are other systems that are not faster, or ones
more reliable. However, most are products of particular FCMs and their
scope is thus mostly somewhat limited.
Even the new design for electronic order routing of the CME has TOPS
still in the mix. With the development of the FIX API, the CME hopes to
connect FCMs to the FIX API and then route the orders to TOPS or CUBS or
GLOBEX. This is as opposed to the current route where orders must pass
through the busy TOPS system first before journeying to GLOBEX2 and back
out again through TOPS. The connection of online traders to GLOBEX2
directly through the FIX API will free up TOPS resources and bandwidth
and should help improve TOPS performance.
Even though the CME and CBOT are partners in TOPS, their relationship is
strained. However, most firms connect to TOPS through CME hosted
connections. Only 2 major firms I know of connect through the CBOT.
The CBOT will have new connectivity options of their own, given their
alliance with Eurex. What products they really offer electronically
are yet to be seen. The CBOT's side by side debt futures trading is
hardly an example of a successful electronic market and they don't offer
side by side grain and soybean complex markets (yet?). They have some
serious catching up to do.
A perfect example of this is the huge volume that Eurex has put up for
the year, including last months almost doubling of the CBOT's volume.
Eurex has traded over 315 million contracts for the year of 1999,
beating their 1998 total of 248 million and the CBOT's 1998 record total
of 280 million contracts.
The CBOT's incompletely defined future can only add to the usefulness
and life of TOPS. The growth in volume for TOPS comes partly on the
back of the E-mini contracts growth and the increasing use order routing
systems to replace costly floor based personnel. The CME and CBOT are
going on different courses and will not likely work together on a
universal replacement for TOPS. Thus, TOPS is likely to be around for
longer than many people have been predicting and most likely will
continue until open outcry ceases in Chicago, in my honest opinion.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
Disclosure: John J. Lothian is the President of the Electronic Trading
Division of The Price Futures Group, Inc., an Introducing Broker.
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