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Recently I visited several LIFFE and Eurex focussed ex-local trading rooms,
several of which are dotted around London and no doubt most other places
where floors have shut down...
It seems that although the local's edge is mostly disappeared they are able
to hold on to a little bit of it by retaining extremely low execution costs.
For example of all the places I visited the HIGHEST all-in round-turn rate I
was told was available for LIFFE contracts was 2gbp. Similarly for the Bund
on Eurex it was around 3 euros. The lowest rates, for comparable volume were
near 1gbp and 1euro.
Add to that the fact they have direct leased line access to the exchanges
and any advantages you might think could accrue from sitting in a room full
of other such traders all day and I think you still have a pretty potent
trading force that internet based traders will have to compete with.
Of course they all pay a fixed monthly fee to whoever supplies the hardware,
connections and roomspace of between 1250 and 1750gbp per month (includes
CQG datafeed and front-end licence fees).
Still when the bid-ask is 10 and your execution cost is less than 2...
Robert
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