Competition works wonders. Pundits bang on for years about
how electronic trading will win out in Chicago, then along come
Eurex and Liffe and, hey presto, serious volume starts to shift
on screen. This, of course, is an over-simplification. CBoT and
CME executives are, to varying extents, reluctant to ascribe
any of the changes at their exchanges to the threat from
Europe. While one can understand their desire not to come
across as purely reactive to specific competition, it is the
ability of the exchanges to remain competitive in general that
has driven the sweeping changes we have seen over the last
Many in the industry have been impressed with the way CBoT has
faced up to the competitive landscape and instituted changes
more radical than they believed it capable of. The current
management - which openly acknowledges the failings of the
organisation in the past - has, to a large extent, turned the
exchange around. The US Treasury futures market is very much
CBoT's to lose, and many observers see no sign of it dropping
The one question mark hanging over CBoT is money - how long can
it afford to operate with the massive fee discounts recently
instituted? As several people have noted, while it does not
have pockets as deep as Deutsche Börse, it also does not
have shareholders to answer to, and may therefore be able to
run without profit for longer. All well and good, but what
about the long-term solution? With the way almost clear for
CBoT to finally press ahead with its demutualisation plans,
what can it do to fill the coffers, besides hiking prices back
up if and when Eurex US retreats? Cost-cutting is one obvious
answer, and the obvious cost is the trading floors.
One of the changes instituted by the current management team
has been a more enthusiastic attitude to electronic trading.
While Liffe Connect is generally considered to be a superior
platform to Eurex's, it could be argued that the change in
attitude - embracing the screen rather than viewing it as a
necessary evil - is more significant than functionality in
making e-CBoT more successful than Ace. The remaining question,
therefore, is how far are they willing to go?
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