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I guess the thing that bothers me is the changing of the formula in the midst
of the great success. The e-mini contracts have been the fastest growing
contracts in CME history and the volume in the mini S&P and Mini Nasdaq has
now overtaken the pit. The CME just announced they traded over 300,000
Globex2 trades in a single day.
By comparison, the CBOT has budget which figures about 900,000 trades per
day. I am not sure of the comparable figure at the CME. But what is
happening is that more and more interest from the retail traders is being
focused in the index contracts, especially the e-minis. This has led to some
retail firms having up to 70 to 75% of their volume in the indices, mostly
eminis.
You get the picture. Fewer and fewer people wanted real time quotes on the
commodities. The S&P became a follower to its electronically trade
offspring. The CME needed to change it fee structures because the market
changed for its products on the retail side. Expect to see more and more of
that.
Just to give you an idea of the change in the landscape let me tell you about
a discount firm I used to work for, FADC. When I left them in 1988 they had
12 discount desks with people trading all kinds of futures and options by
telephone. When FADC was acquired by ED&F Man International, Inc. (the
clearing firm my employer clears), there was only one true discount desk
left. FADC farmed some discount clients out to full service brokers, but
also there was a huge shift to online trading. And a vast majority of online
traders are trading index and emini contracts.
Now I am a big fan of the reduced fees for retail traders. In fact, I
believe part of the success of the eminis is largely because of the free
online quotes they offered at the same time millions of people were investing
in the stock market and going online for the first time. Increased
transparency and distribution of prices has been a key element in the success
of the ECNs and Nasdaq itself.
The exchanges have long used quote fees as a lucrative source of income. For
the most part it is steady and not directly related to volume. I am sure it
does great things for smoothing their income charts. But as the established
exchanges move away from the things that made their contracts successful in
the first place and base their budgets on that income, they open the door for
new competition. There is new competition all around, so they better be
careful when raising their prices.
I would think they should look at some volume rebate so as not to alienate
their non-member highly active trader community.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it! John J.
Lothian is the President of the Electronic Trading Division of The Price
Futures Group, Inc., an Introducing Broker.
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