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The Chicago Board of Trade introduced new electronic trading functionality for options with the launch of a system called eRFQ. eRFQ is a Request for Quote function that is accessible through the CBOT web site, www.cbot.com. You can sign up for simple view only of prices and depth for Swap options, or you can register for the Premium service that will allow you to interact with the market makers through the CBOT web site.
With the Premium service, when you click on the eRFQ button next to a particular strike price, an order ticket pops up on the workstation of the market maker allowing them to increase the size of their bid offer or tighten up the spread. When I watched a demonstration of the system today the market makers would increase the size of the bid offer from 100 to 300 or 400. The spread would come in from 4 ticks to 3 ticks.
While not many of you are trading options on the 10-year or 5-year swaps at the CBOT, this functionality might be the reason you should consider doing so. This system, a white labeled version of the Liquidity Direct system, offers the best market communications, transparency and speed of any futures options market I have seen. The market makers have been making displayed two-sided markets in the swaps since January. Assuming you are an online trader, your system needs to have options access to the CBOT a/c/e electronic trading platform to be able to act on the information.
If any of you are options traders, this is worth a look. This is available to any trader with a futures account, through any registered broker. If you go to the CBOT web site, click on the eCBOT link in the upper right hand side of the initial screen. On the left hand memo, select the eRFQ link and presto you are there.
This is important functionality. European futures options markets depend strongly on telephone based pre-trade dealings. The set up of eRFQ is much more fair and open for all to see. Anyone with RFQ function for a/c/e, available from different front end screens, can see the requests. Anyone logged into the web site can see the requests show up in the bid offers. Anyone can act on those bid offers, not just the person who did the trade.
The CBOT is trying this out in Swap options because it is a developing market that they believe will be a big success. This also does not ruffle that many feathers of pit traders. But this system could be deployed in several other markets, including Dow options and other interest rate products. This could be the start of the electronic option trading revolution that moves option trading out of the pits.
Thus, it is worth a look because this is the way that options could be traded in the future in many different markets.
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. and publisher of the John Lothian Newsletter.
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