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You might to interested to know that similar doubts about open outcry
caused the price of seats on Simex to drop from about $300,000 to
$90,000 in the space of a year (with the Asian crisis giving a good
push as well). Simex relatively recently announced that they would
be merging with the Stock Exchange of Singapore, and that all seats
would be changed to shares, and that within a few years the exchange
would go public. A seat would get $170,000 of shares (av of last 12
mths prices). Trading was suspended in seats for a week, and since
then they have been trading at around $280,000 again. Given that
IPO's here can be oversubscribed 30-50-100 times, the chances of
getting into a money making machine at par is very low. Hence the
premium on the seats. It turned my regret at owning at seat (which
had lost a hell of a lot of its value) to joy - just have to wait for
the IPO.
I believe LIFFE are doing/have done a similar exercise.
> -----Original Message-----
> From: owner-realtraders@xxxxxxxxxxxx
> [mailto:owner-realtraders@xxxxxxxxxxxx]On Behalf Of THE DOCTOR
> Sent: Saturday, 3 July 1999 3:04
> To: I4Lothian@xxxxxxx
> Cc: realtraders@xxxxxxxxxxxx
> Subject: Re: FUTR: CBOT Membership Lease Prices Causes Conundrum
>
>
> I think your analysis of the problem is real. I think you
> miss the real issue as
> to why seat lease prices are so high and what is actually
> evolving in the trading
> community.
>
> Leases are high because the users are afraid to own seats
> given the uncertain
> future of physical floor trading. A great majority of the
> seats are owned by
> "nonusers" (often former users or simply seat speculators
> holding the seats for
> income). the uncertainty is so high that floor users will
> pay to lease so as to
> avoid the risk of ownership. Ownership risk is twofold,
> especially at the CBOT.
> The risks are seat price decline and the other big issue at
> the BOT is the
> assumption that a technology tax would be imposed on the
> seat owners. So in
> effect you have an environment where people will pay
> anything to lease so as to
> conduct their day to day business ... and not have to own.
>
> I4Lothian@xxxxxxx wrote:
>
> > Months ago I wrote on RT and some other forums about how
> CBOT membership
> > lease prices were trading at premium levels reflecting
> the demand for Full
> > CBOT membership badges to trade over on the CBOE. Full
> CBOT memberships are
> > now leasing for $10,355. This is up from the $7,000 rate
> I quoted months
> > ago, indicating the problem is only getting worse.
> >
> > Essentially here is the problem. Here are two examples:
> >
> > 1) A floor broker owns a membership and acts as a filling
> broker in the
> > soybean pit executing customer orders in the back months.
> The broker has
> > order risk and maybe a clerk salary to pay. Volume has
> dropped and the
> > broker is not making money and may be actually losing
> money. This member can
> > then lease out their seat and make a cool $120,000 per
> year with no error
> > risk. Additionally, this member can then go out and take
> a new job and try
> > to earn a living doing that. Given that the threat of
> electronic trading does
> > not bode well for the careers of floor brokers it might
> be a good idea to not
> > wait until the last minute to learn some new skills.
> >
> > So now we have lost a floor broker and when the member
> leases the membership
> > it is likely to go over to the CBOE rather than stay at the CBOT.
> >
> > 2) A floor broker leases a membership and acts as a
> filling broker in the
> > back months of wheat. With lease costs escalating and
> volume dropping, while
> > other costs (clerks) remaining the same, the floor broker
> is probably
> > breaking even or even losing money. The prospects for a
> volume increasing
> > bull market look particularly dim in all the grains and
> the soybean complex.
> > What to do? They could trade their own account, but
> these may not be the
> > type of conditions for that type of activity.
> >
> > The economic pressures and opportunity costs are putting
> pressure on the back
> > month brokers and marginally profitable pit traders.
> Taking the easy lease
> > money for members who own their seats looks like a much
> smarter thing to do.
> > This is going to create problems in the back months
> especially if there are
> > no brokers who can make a go of it. Or even if there is
> one who can, they
> > will have all the volume, which could lead to execution
> and efficiency
> > problems.
> >
> > The CBOT could switch back months to an electronic
> system, such as Project A
> > or eventually the Eurex interface. But this will hurt
> volume in the front as
> > the spreaders will not be able to lay off risk easily by
> hitting the broker
> > bids and offers in the back months.
> >
> > The CME is going to side by side trading in the Euros and
> has introduced
> > handheld units which will allow pit traders to interact
> with Globex2 markets.
> > But so far the CBOT has not introduced such technology
> and it would probably
> > be months away. That may not be soon enough to stave off
> the problems
> > outlined above.
> >
> > The CBOT could change the membership categories to
> facilitate putting more
> > people in the grain pits, but that seems unlikely. I
> really don't know what
> > the right answer is, or even if there is one. Certainly
> technology issues
> > and political concerns are problematic for any answer.
> >
> > The moral of the story is to focus your trade in the
> front month where the
> > volume is.
> >
> > This is not a problem in the CBOT option pits as COM
> seats are plentiful and
> > leasing for a paltry $325 per month.
> >
> > 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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