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Here is the cme response to my note on floor traders in the nd, and the
exorbitant spread charged by them as well as the incredible margins for the
nd present at this time. Interpret it as you see fit.
Don
----- Original Message -----
From: "David Lerman" <dlerman@xxxxxxx>
To: <roos@xxxxxxxxxxxxxxx>
Cc: <ronin@xxxxxxxxxxx>
Sent: Wednesday, April 19, 2000 3:23 PM
Subject: RE: The ugliest rally...
> Gentleman-sounds like you folks are a tad unhappy with conditions in the
ND
> pit....
>
> I can't "disagree" with you, but lets assume that the ND bid/offer spread
> is indeed 10 points...
>
> At $100 per point that is $1000.00. The notional value of the contract is
> roughly $360k. $1000 out of 360k is about 27 basis points. As part of my
> job, I keep an eye on the markets. I watch bid offer spreads on lots of
> instruments. I also noted the bid offer spreads on Thurday, Friday as
well
> as this past Monday and Tuesday (4/17 and 4/18). I also compared these
bid
> offer spreads with those in the QQQ, the options on the QQQ, OEX , SPX,
NDX
> etc. When implied volatility reaches all time highs (which it did in the
> Nasdaq 100 options) of 70%, the "chaos" causes markets to react quite
> differently-as veteran traders (you folks sound like you have experience)
> you should know that all markets experienced wide bid offer spreads. Yes
> it is frustrating, but everytime we get big swings, markets widen, it
> happened in 87, 97, 98 and recently.
>
> As I said earlier, a 10 pt bid offer spread is high, but the 27 basis
> points compares well with other instruments. The QQQ bid offer was ? to
> 1point and sometimes wider-figure the amount of QQQ needed to equal 1 ND
> contract and I think you'll find a favorable comparison. Options too had
> enormous bid offer spreads. None of this makes any trader happy. But it
> is a fact of life that volatile markets can sometimes be more expensive.
>
> Regarding margins...just pretend for a second that you own an FCM. You've
> built a good business. Now a customer wants to trade ND futures. CME
> minimum performance bond is about $37,500. The daily changes of late have
> been in the range of $20,000 to $35,000-nearly the entire performance bond
> amount. The thing is swinging 5-10% regularly!! As an added protection
some
> firms choose to increase this performance bond for customers above the CME
> minimums. Yes it is a hinderance to trading for some, but it is
considered
> good risk management by some in the industry. Put yourself in their shoes
> for a second, and the "extra margin" haircut might make sense. As
> volatility decreases-and statistically speaking it should, markets should
> get cleaner, and performance bonds should decline.
>
>
>
>
> David Lerman
> Sr. Director
> Equity Index Products
> 312-648-3721
>
>
> -----Original Message-----
> From: Vietmeier, Brett
> Sent: Wednesday, April 19, 2000 11:02 AM
> To: Redding, Rick; Lerman, David
> Subject: FW: The ugliest rally...
>
>
> -----Original Message-----
> From: Don Roos [SMTP:roos@xxxxxxxxxxxxxxx]
> Sent: Wednesday, April 19, 2000 10:58 AM
> To: index@xxxxxxx
> Subject: Fw: The ugliest rally...
>
>
> ----- Original Message -----
> From: "Don Roos" <roos@xxxxxxxxxxxxxxx>
> To: "Andy" <ronin@xxxxxxxxxxx>
> Cc: <omega-list@xxxxxxxxxx>
> Sent: Wednesday, April 19, 2000 10:45 AM
> Subject: Re: The ugliest rally...
>
>
> > The most greedy and ugly piranah on the cme floor reside in the nasdaq
> pit.
> > That market would be dead in the water if it were not for the liquidity
> > provided from arbitrage with the NQ mini. A 10 point spread to line the
> > pockets of the piranah is something that the cme should not tolerate. I
> > welcome the time when the floor traders have to go upstairs and actually
> > compete with the rest of us instead of playing the ripoff game. They
> might
> > find trading is a bit more difficult than their present game.
> >
> > Don
> >
> > ----- Original Message -----
> > From: "Andy" <ronin@xxxxxxxxxxx>
> > To: "Timothy Morge" <tmorge@xxxxxxxxxxxxxxx>; <frwd@xxxxxxxx>
> > Cc: "List, Omega" <omega-list@xxxxxxxxxx>
> > Sent: Wednesday, April 19, 2000 10:36 AM
> > Subject: Re: The ugliest rally...
> >
> >
> > > : My floor broker in the Nasdaq futures tells me that conditions are
so
> > poor
> > > : today, he isn't even willing to trade for his own account. The
> off-floor
> > > : traders that normally trade 20-30 lots at a time are either trading
5
> > lots
> > > or
> > > : smaller now or are off the entire week because their children are
off
> > from
> > > : school until Monday. And the larger CTAs that normally are always in
> the
> > > : markets have not been seen since last Thursday.
> > > :
> > > : It's very thin out there. Be careful if you choose to trade in these
> > > : conditions.
> > >
> > > Don't forget that some houses have raise the margin. CME's margin
> > > requirement is $38K for initial for ND while Refco/LFG and EDF Mann
> > requires
> > > $60K per contract for initial, $48K for maintenance. And then forget
> the
> > 10
> > > point spread between the bid and ask, as well as it's only good for 10
> > > contracts. I know that the ND's have always been thin but this is
> > > ridiculous.
> > >
> > >
> >
> >
>
>
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