In the second part of our investigation into the early days of Eurex US, FO Week's panel of industry figures considers more factors that could help the fledgling exchange get off the ground.
Interviews by Jim Kharouf and Laurence Davison
5 - CBoT fails to maintain competition
CBoT responded aggressively to the launch of Eurex
US, drastically reducing its exchange fees and introducing a
range of other incentives. While recent developments have
suggested that CBoT is in better financial shape than some
suspected (see FO Week vol 9 no 9), if it cannot
maintain its spending and focus it may give Eurex US an
opportunity. How important is it that CBoT continues to
maintain its competitiveness, and could any mistakes hand Eurex
US an advantage?
Tom Kloet, chief operating officer, Fimat USA, New
York: I have not seen any indication that the Board of
Trade will not remain competitive. But if there are events I
don't foresee that would limit their ability to be competitive,
that would certainly help Eurex US. They have a proven trading
platform, proven clearing platform, but unproven liquidity at
But I'm impressed by the Board of Trade's reaction. I think
they took a very business-like approach to Eurex US coming in.
And that's one of the reasons Eurex US's success has been
Russ Wasendorf, chairman and ceo, Peregrine Financial
Group, Chicago: When there is the possibility of
competition, you stay on your toes. It sharpens everyone's
attention on what the customer needs and wants. This is the
Board of Trade's market to lose and for Eurex US to gain. They
both must be competitive in order to accomplish their agendas.
The Board of Trade cannot say, 'Well Eurex US is not getting
any traction, so we can increase our fees'. But if Eurex US
completely falls on its face and fails, you'll see those rates
go back up. You can almost be assured of that. That's the way
Mike Manning, president and ceo, Rand Financial
Services, Chicago: The question is, 'can Eurex US
last?' not 'can the Board of Trade last?' There will be more
pressure from Eurex's shareholders because they don't care
about breaking even. They want a rate of return. They'll be
more accountable to its shareholders than the Board of Trade is
to its members. The members will be happy to run it in neutral
for as long as it takes.
Peter Barkow, analyst, HSBC Trinkaus & Burkhardt,
Düsseldorf: If we're talking about a price war,
of course CBoT is much worse off than Eurex is. For Eurex it's
a limited investment, once the thing is up and running, it's
probably $25-30m or so, which is nothing compared to the
overall revenues of Deutsche Börse. But I don't think we
will see a massive price war here; Eurex has said that they
wouldn't decrease fees again, though if we're talking about
market share below 1% in six months' time they might
re-evaluate that strategy. CBoT is certainly under more
pressure to keep prices up, though.
Joanna Nader, analyst, Lehman Brothers,
London: The Board of Trade says it can maintain fees
at those levels, but the fact is they have a six month review
period and they do have a more costly infrastructure than Eurex
US. I don't think people feel comfortable that if Eurex were to
leave that CBoT would not raise prices. But it's a big enough
market that you can have an efficient market traded on two
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