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Two people today asked me about something which I had reported in my
newsletter a couple of weeks ago, but is just now being picked up and
discussed. I think this is because of the further enunciation of this from
the press coverage of the Futures Industry Association International
Conference down in Boca Raton last week.
The CME technology staff had announced the development of a new matching
engine at the CME that was internally developed from the existing Globex NSC
trading platform. This new trading platform is called Eagle and will be
deployed sometime this calendar year.
Eagle will allow for electronic spread trading, with something like 22
exchange predefined spreads, packages and bundles to be traded. This will
allow for a much greater electronic replication of the pit trading in markets
like Eurodollars than had previously been available.
Additionally, my sources (which are very good) tell me that the CME bought
the source code for the TruExchange Financial Edition matching engine.
TruExchange was a B2B company that developed a financial markets matching
engine that I called the "killer app" of matching engines based on the
demonstration I had seen and the functionality that TruExchange employees
claimed the software could do. Apparently the CME and the NYMEX agreed with
me because both have apparently bought the source code, though at fire sale
prices due to TruExchange shutting down operations.
NYMEX chairman Vincent Viola confirmed this to me and several reporters at a
Boca Raton press reception at the FIA event. I was attending the conference
with press credentials because of my widely distributed newsletter. On the
other hand, Jim McNulty, CEO of the CME would not comment at a CME press
luncheon I attended on whether the CME had bought the source code.
The CME's plan, according to my sources, is to use the TruExchange software
to develop electronic option trading and Block Trading intermediation. From
there the robustness of the matching engine will be explored for potential
other uses.
The goal of the CME is to have all of its contracts traded electronically in
some form by the end of the year. I don't think that means side by side
trading of the big S&Ps, though trading big S&Ps could be easily facilitated
should something interfere with the open outcry trading.
The CME has very aggressive technology plans in the coming months, including
streamlining the path to the Globex matching engine by removing several
components and moving all the brokerage firms to the FIX API 4.2 version the
CME calls iLink. That will level the playing field with all the firms
connecting via the same technology, simplify the processes and improve the
speed of the matching engine and processes.
The CME has experienced dramatic growth in its Globex trading, including in
the number of orders that Globex is processing. As the march towards more
electronic trading continues, the demands on the matching engine in terms of
orders and number of contracts will only get larger. The average open outcry
order is something like 15 contracts, while electronic trading is near 1.5 to
2.5 contracts per order at the CME. I have the exact numbers somewhere in my
notes at work, but that gives you an idea of one of the challenges facing the
CME.
The CME has a highly competent technology staff, and a tremendous corporate
culture. There are many aggressive goals to achieve in the next year. But
they are taking the steps to achieve those goals and build on their already
tremendous growth and profitability.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it! John
Lothian is the President of the Electronic Trading Division of The Price
Futures Group, Inc., an Introducing Broker and editor of the John Lothian
Newsletter.
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