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I recently read a book recommended to me by one of the most forward thinking
people in the futures industry I know. He suggested I read the Innovator's
Dilemma by Clayton Christensen. He said he had given a copy to each of the
members of the Board of Directors of the Chicago Board of Trade. I read the
book. He was right. This book gives a powerful lesson about the effects of
disruptive technology on industries and companies and how utilizing the best
of conventional business practices can ruin a firm.
I recommend the book most heartily.
Another contact in the industry told me that another very forward thinking
player in the futures industry had made an inquiry on behalf of a foreign
exchange about buying the Midam from the CBOT. The CBOT turned the offer
down evidently.
Anyway, this got me thinking about the Midam and what plans the CBOT has for
it. Judging by the price of the memberships I can only gather it has no
plans. To be fair, lets just say I have not heard of any. So I thought I
would offer it some.
One of the puzzling items in The Innovator's Dilemma was about how firms
would create this disruptive technology without any idea whom to sell it to.
Create a product and make it find a market. In that spirit I offer the
following suggestions to the CBOT to inject some vigor into existing
contracts and offer some new contracts. Here goes:
Not in any particular order
1) Make the Midam contracts fungible with the primary CBOT contracts,
allowing back office offset; example offset 5 Midam grain contracts (5,000
bushels) versus 1 CBOT grain contract.
2) Make any lot of Midam grains under a 5 lot a job lot, meaning just one
commission and fee charged no matter if the order was for one contract or 4
or five.
3) Give EC terminals to ALL the Midam brokers and pay them to use them.
4) Dually list Midam contracts on Project A and trade them side-by-side.
5) List a Dow Jones Industrial contract on the Midam and Project A with a
face value of $1000 per lot and make all trades under a 50 lot to be a job
lot with one commission and exchange and clearing fee charged.
6) List the a 30-Year Treasury Bond contract on the Midam and Project A with
a face value of $10,000 per lot and make all trades under a 5 lot to be a job
lot with one commission and exchange and clearing fee charged.
7) Give away free quotes on the Internet for the Midam contracts.
8) Make the job lot Dow Jones and Bond contracts fungible with the CBOT
contracts for back office offset.
9) List a $1000 face value stock index contract based on an index of the top
15 most commonly held mutual funds in a particular sector. Make a job lot
anything under 50 lots.
10) Repeat number nine in the top ten mutual fund sectors.
11) Offer Project A terminals for $100, or even better for free, to trade
just the Midam contracts.
I have no idea if any of these will fly, but you have to have lots of ideas
coming out of the laboratory to get a few that will. And since the Midam
seats are at rock bottom anyway the members are hardly going to complain.
This will also allow the CBOT to get some ideas for new contracts or
combinations of contracts when it fully implements its electronic trading
strategy. Now is a good time to try some new things that are very doable.
I would also like to stress that even though I hold a professional position
within the industry that these ideas (as wild and crazy as they are) and this
post are those solely of John Lothian the individual, not John Lothian the
broker. Different colored hat.
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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