The judging process

Towards the end of last year, FOW began gathering anonymous nominations for possible contenders for the 2008 awards. Nominees came in from around the world and after a shortlist had been compiled the judging began. Over 50 industry leaders gave their opinions as to which firms had been most successful in the past twelve, quite turbulent, months. Innovation, growth of business, expansion into new areas and exemplary customer service were rewarded at this year’s ceremony which took place on April 7 at Plaisterers’ Hall, One London Wall.

Exchange Newcomer

Nominees

• Dubai Mercantile Exchange
• Prague Energy Exchange

Winner: DUBAI MERCANTILE EXCHANGE

“A trail blazer for the region, Dubai Mercantile Exchange, is an exchange that provides a platform and a product that is needed by the FCM community”

Launching a new source of liquidity isn’t an easy task but in 2007 one exchange really made its mark and seems already to be an established player in the international exchange traded derivatives space.

On June 1, Dubai Mercantile Exchange (DME) launched and now looks set to succeed where others in the past have failed. The Middle East, which holds the majority of the world’s oil reserves, was, before the establishment of this exchange, yet to see the establishment of an exchange traded Middle East crude oil benchmark.  By securing an historic MOU with the government of Oman, just ten months after launch, DME now has 70 members and regulatory approval from 24 international jurisdictions. To quote one of our peer judges, “it really is a trail blazer”.

After nine months, it has traded over 250 million barrels of sour crude oil, has successfully engineered the first Middle East physically delivered sour contract and launched a most respected source of new liquidity. The market watched and waited as the first delivery date approached but all went smoothly and the exchange has now passed every record set before for the volume of physically delivered crude oil in the first year of a contracts trading cycle.

And, not content to hold the leading position in the sour space the exchange is now set to launch a financially settled Oman crude oil contract and, somewhat more controversially, a financially settled Brent contract rivalling Intercontinental Exchange (ICE). In a further stab to its rival, DME will settle its prices from ICE’s quotes after one of its parent companies New York Mercantile Exchange lost a long running legal battle with ICE over settlement quotes. After ICE managed to launch its sour crude contract before the launch of DME, this is one in the eye for the exchange, and the ability to arbitrage between these differing contracts is set to enhance the platform’s status even further in the months to come.

Ahmad Sharaf, chairman of DME, accepted the award in London, saying: “Importantly, this award also serves to highlight the truly monumental nature of what has been achieved by the DME in establishing the exchange. The sheer challenge of creating a new international energy futures exchange and a new futures contract simultaneously was tremendous. That the DME has successfully done both has been a historic accomplishment. Today, we see the Oman crude oil Futures contract continuing to gain acceptance as the global benchmark for the pricing of Middle East crude oil and witness new participants from around the world trading on the exchange every day.”

New Contract of the Year

Nominees

• SHFE Gold
• DME Sour Crude
• ASX CFDs
• Safex Can-Do Options
• PHLX World Currency Options

Winner: SAFEX CAN-DO OPTIONS

“Safex’s first exotic options traded over three million contracts in their first year of launch in what truly was a innovative approach to options trading”

For any exchange launching a new contract in today’s environment there appears to be an uphill challenge. In the whole of 2007, 1,303 new futures were launched and by the end of the year over 70% were yet to trade. On the futures side the most prolific issuer was Johannesburg Stock Exchange (JSE)’s derivatives segment South African Futures Exchange (Safex) which was purchased by the stock exchange in 2001, when during the course of the year it issued 366 futures. On the options side, not many new contracts arrive on the scene with such a rush of sustained growth as Safex’s exotic options.

Having traded over three million contracts in its first 12 months, Safex’s Can-Do options have undoubtedly been one of the more successful new contract launches over the past year. But, having been rolled with the aim of bringing additional OTC volume onto exchange these tailor-made products exotic options are more than just launching a contract for its volume growth.

The African market is ripe for development but there needs to be more people such as Allan Thomson, director of trading, at JSE working to move the markets forward. “I think derivatives will play an increasing role in the way Africa will trade,” he says, adding that the continent needs external involvement but ultimately the push needs to come from the domestic users.

Speaking at Derivatives World London, speakers agreed that to progress Africa needs to promote its cross boarder trading activities and that derivatives instruments are one of the best ways forward. By being able to tailor to the individual investors needs in such a flexible, exotic format but having the security and reassurance behind trading on an exchange, these products have really captured the imagination which has ultimately led to their success. A popular choice among the peer review panel, as one judge commented: “What they have produced is a contract that is not only seminal in its nature but accurate in the way it caters to a trader’s needs.”

Developing Exchange of the Year

Nominees

• European Climate Exchange
• Turkish Derivatives Exchange
• Safex
• BM&F
• Dubai Gold & Commodity Exchange

Winner: EUROPEAN CLIMATE EXCHANGE

“European Climate Exchange continues to dominate and was responsible for over 80% of the exchange traded carbon market in Europe last year”  

It is not often that stock or futures can justifiably argue that they exist for the betterment of the planet. And in the face of growing competition European Climate Exchange (ECX) still holds over 87% of the exchange traded marketshare in its core CO2 EU allowance contracts. Since launch in April 2005, the EUA futures contract has seen close to 1.3 billion tonnes CO2 traded with an underlying market value €241.3 billion tonnes CO2 traded with an underlying market value €24 billion. In 2007, total traded volume more than doubled its previous year’s figures and the exchange continues to achieve record screen based volume.

On March 14, ECX moved into a new stage of development by settling its frustrations over its clearing operations and finally launching its much anticipated CER contracts. These are based on Clean Development Mechanism project-based credits issued by the UN. Aside from the logistics behind the issuing of these contracts, the clarity of the initial volume which reached 924,000 tonnes in its first three weeks of trading, speaks for itself. It also goes a long way to demonstrating the amazingly strong member support this exchange has.

On April 10, ECX traded its highest daily volume to date when 16.79 million tonnes of EUA and CER contracts on the Intercontinental Exchange platform. Of these, 10 million tonnes were EUA futures, 5.1 million tonnes were EUA options and 1.6 million tonnes were CER futures. 

Most recently the exchange has added two additional contract expiry dates which are the first to extend into the third phase of the Kyoto agreement. “The EU ETS continues to be the centre piece of global carbon and ECX wishes to support this development. Although the successor to Kyoto has yet to be finalized, it is important to show that there is life post 2012 for the European contract,” says Sara Stahl, business development manager for ECX.

Independent Trading Firm of the Year

Nominees

• Schneider Trading Associates
• Saxon Financials
• Capstone
• Transmarket Group
• Marex
• Alaron
• Marquette Partners

Winner: MARQUETTE PARTNERS

SCHNEIDER TRADING ASSOCIATES

 “In my opinion, both these firms are more than market makers. They are at the front edge of what they do, with growing numbers of staff and an expanding international presence. They are both winners.”

Judging for the winner of the independent trading company of the year proved one of the most difficult for the panel. Given the tightness of votes and recommendations it was eventually decided that FOW should reward two companies which became impossible to separate.

Marquette, a leading liquidity provider on a number of leading futures and options exchanges throughout the world including CME Group, Eurex, Euronext-Paris, Euronext-Liffe and Borsa Italia grew its staff numbers in its Chicago headquarters while also maintaining an established trading house in London. Recommended for its highly professional set-up, the company proved a popular choice among to judging committee.

Schneider Trading Associates (STA) holds offices in locations including London, Germany, Spain, France and Singapore and has managed to position itself as a leading market maker on a number of the largest derivatives exchanges in the world. STA has also managed to establish itself as highly regarded in positions outside of just its proprietary trading operations with a subsidiary fund business, technology team, training operation and brokerage all proving successful within the global derivatives business.

Clearinghouse of the Year

Nominees

• Options Clearing Corporation
• LCH Clearnet
• CME Clearinghouse
• ICE Clear US

Winner: OPTIONS CLEARING CORPORATION

“Options Clearing Corporation supports multiple exchanges. It has coped with an influx of business and looked for outward expansion – that’s a great effort”

While the debate as to the most effective and least monopolistic structure of clearing, one utility is continuously doing its job, without fail, with exemplary service and with burgeoning transactions volumes, every day. Through the volatile credit squeeze, options have come into their own and so too has the Options Clearing Corporation (OCC). Make Cahill, chief executive, may describe his firms business as in a form of “groundhog day” but he also freely admits that they are near obsessive over capacity.

The choice of clearinghouse of the year was always going to be a tough, particularly with the ongoing debate on clearing structures demonstrating how divisive the subject is within the market but, the peer review panel awarded OCC with the honour.

As options grow at a rate that outstrips both futures and equities substantially over the last year, so has the capacity demands OCC faces. The options clearinghouse is clearing on average more than 14 million contracts a day for 2008 – certainly no mean feat.  

These demands have been amplified by uncertainty in the financial markets which has manifested itself in volatility – a trait that lends itself to options trading. However, while volume has increased, OCC has continued its routine of successfully clearing the trading volume without glitches or problems.

Despite growing 42% throughout the year, the organisation remains member centric, with the recent highest level fee rebate that it returned to its members in March.

However, despite this success, the clearer may need work hard to keep up with volumes as they are set to continue expanding. At the moment 15-20% of US equity options volume originates from Europe. A transatlantic link recently announced by OCC and ISE and Eurex is set to see this European based volume explode.

Clearing Firm of the Year

Nominees

• Fortis
• Barclays Capital Prime Services Futures
• Newedge
• JPMorgan
• Euronext Liffe B Clear

 Winner: FORTIS

“This firm really does stand head and shoulders above the rest. It delivers every time and excels in what it does”

The choice of clearing service was a particularly difficult task for the panel, with each of the nominees worthy in one way or another. However, there can only be one winner and after much market consultation, Fortis was chosen - pipping its rivals for its excellent 2008.

Fortis offers clearing on more than 60 of the world’s leading exchanges for member and non-member market participants alike. It is consistently ranked among the top three clearers in every time-zone based on amount of turnover and number of clients.

However, at a time when clearing has grabbed more headlines and column inches in the past few months than in most years, the need for security and peace of mind when it comes to clearing has become tantamount to ones overall business. Fortis successfully met this challenge and was rightfully awarded.

Despite such fierce criteria for success, Fortis soon emerged as the leading choice for the award with many praising Fortis’ exchange connectivity and global reach coupled with the clearer’s excellent client relations as critical to their recommendation.

Marcel Jongmans, CEO of global brokerage, clearing and custody at Fortis Merchant

Banking, hailed the award as symbolic of Fortis hard work “This significant award is a tribute to Fortis’s capabilities in global clearing. It reflects our ability to leverage our international network to provide our clients with comprehensive market access to exchange-listed, traditional and non-traditional investment instruments and alternative products. Our intensive focus on our clients clearly sets us apart from our competition.”

Financial Derivatives House of the Year

Nominees

• BNP Paribas
• Barclays Capital
• Newedge
• Deutsche Bank
• Goldman Sachs
• Morgan Stanley
• JPMorgan
• MF Global
• Merrill Lynch

Winner: JPMORGAN

 “Through the recent turbulent months JPMorgan has continued to be a major liquidity provider. They have great technology, good coverage and are really responsive to the buy side needs”

Being named financial derivatives house of the year means being able to cover all aspects of the industry: from its excellence of execution to its control of clearing; being active in all areas of a growing global market as well in the increasing multitude of sectors of products in this expanding asset class. JPMorgan ticks all the boxes.

It has avoided the huge losses as a result of the credit crunch, it has had great involvement in the growing number of FCM-driven new exchanges being launched and has pioneered some joint ventures pushing into new areas geographically which others have found too much of a challenge such as China. Today the firm clears on more than 70 exchanges and offers electronic trading access on 50.

At the end of 2007, JPMorgan’s OTC exposure totalled $77.2 trillion in notional value – down from the $97.1 trillion held as of September 30, but still larger than any other commercial bank. Its deal with Bear Sterns is set only to see this side of the business explode.

JPMorgan’s research team, in both the listed and OTC markets is respected the world over, its client solutions are going from strength to strength and its key management are active players in the wider derivatives market holding positions in associations outside of JPMorgan’s doors. Its work in emerging markets in opening up derivative markets in areas such as Russia, South America and India impressed the peer review panel with one commenting, “by choosing carefully which areas to push forward they are exhibiting a strategy that others should follow.”

Execution House of the Year

Nominees

• BarCap
• MF Global
• Interactive Brokers
• Newedge
• DBS Vickers
• UBS
• Fortis
• JPMorgan

Winner: INTERACTIVE BROKERS

“Interactive Brokers has always been ahead in its technology innovation but at a time when unauthorised trading has caused others problems, I’m not sure anyone else has invested so much in this area and does as much for its customers”

Without doubt it has been a challenging year for execution houses. Although the number of futures contracts traded has been steadily on the rise over the past twelve months, the recent volatility has caused trouble for some.

The activities of one trader at Société Générale, which were exposed in January, also highlighted the importance of risk management systems and sent compliance officers the world over into a flurry of nervous activity. But one execution house has invested in its technology and as one peer review judge commented: “It does more for its customers’ IT wise than any other.”

According to Steve Sanders, senior vice president of marketing and product development at the brokerage, systems should be infallible.

“For Interactive Brokers, the risk of a rogue trader has always been a concern of ours and therefore we decided to take a different approach on technology. In my previous experience, I have witnessed trades done on the side or tickets left in drawers – the right technology can ensure that such mistakes, whether intentional or not are avoided,” he said in a recent interview with FOW. Interactive Brokers automated risk manager constantly checks trades against the relevant credit limit.

Interactive Brokers crosses both the retail and institutional sectors and today executes over 700,000 trades a day. It is expanding its electronic brokerage division to the institutional sector and is increasing its membership on exchanges, market data centres and clearing corporations. It also holds weekly steering committee meetings headed by the firms chairman to ensure the right questions are being asked and that all staff are fully briefed on what is going on.

Despite some fluctuations of its shareprice, as options have thrived in the recent volatility so too has Interactive Brokers. It is regularly the number one liquidity provider on Chicago Board Options Exchange and International Securities Exchange. When it underwent its IPO last year, it was the largest on Nasdaq.

Exchange of the Year Asia Pacific

Nominees

• Shanghai Futures Exchange
• Singapore Exchange
• Bursa Malaysia
• Australian Securities Exchange
• National Commodity & Derivatives
• Exchange of India
• Multi Commodity Exchange of India

Winner: BURSA MALAYSIA

“Bursa Malaysia’s international drive and palm oil contract have really set them apart this year”

Throughout 2007, Bursa Malaysia’s average daily trading volume stood at 25,011 with its newly launched crude palm oil contracts totaling 2.8 million contracts. It also has ambitious plans to increase its derivatives business by 50% throughout the rest of 2008.

Recently, its equities department has reported weak first quarter results as the stock market drooped following the governing coalition’s stunning losses in the March 2008 elections. But that hasn’t dented the work of the derivatives team and not least the stellar performance of the crude palm oil futures (FCPO) contracts which achieved a 103% growth over the last three year period. Commenting on the win, Dato’ Yusli Mohamed Yusoff, chief executive officer of Bursa Malaysia said, “It is truly a great honour to be recognised by FOW and the judging committee of respected industry leaders. This recognition truly stamps Bursa Malaysia’s continuous efforts and initiatives to boost the derivatives market in Malaysia and across the region.”

And it does not even seem that the recent credit squeeze can dent the confidence of the exchange’s head of global markets, Raghbir Singh. Speaking at Derivatives World London, he told the delegates: “We have seen increased interest in the listed space since the turmoil began.” In particular, Singh pointed to the rising volumes in the FCPO contract but also stressed that in an era of growing uncertainty the large financial players are moving towards heightened risk management – an area which Bursa Malaysia excels in.

Exchange of the Year Americas

Nominees

• Intercontinental Exchange
• CME Group
• MexDer
• Montreal Exchange
• New York Mercantile Exchange

Winner: CME Group

Highly Commended: Montreal Exchange

“The rise and rise of CME Group is so impressive, no one comes close to what they’re doing. The completed takeover of Chicago Board of Trade speaks for itself... you really can’t see past this exchange”

No one will dispute the size, dominance and product diversity of the winner of the Exchange of the Year Americas. But alongside CME Group’s win, FOW gives Montreal Exchange a Highly Commended recognition award.

The peer review panel time and again applauded Montreal’s work this year. This covers not only its landmark agreement with Toronto Stock Exchange to create TSX Group but also the increase of its strategic stake of Boston Options Exchange to secure its position in the fast growing options arena as well as launching an environmental suite of contracts. So, in a highly regarded second place comes Montreal Exchange.

But, the winner of this award had a year like no other. Merging two of the largest futures exchanges in the world created headlines the world over and has created a contender above all others. On course to now bring New York Mercantile Exchange within its fold, taking an equity stake in Brazil’s BM&F and securing a licensing agreement to host Kospi 200 futures contracts on its Globex platform, its international presence is set to increase moving forward. The migration of Chicago Board of Trade (CBOT)’s contracts on to Globex moved seamlessly which was no mean feat and proved that Globex’s ability going forward.  

To quote just a few members of the judging panel: “CME completed the purchase of the CBOT and now is trying to take over Nymex...that speaks for itself”. Another said:

“The rise and rise of CME Group is so impressive that I’d have to choose them for creating such a behemoth without any serious opposition”, a third added: “Who’s even coming close to what they’re doing?”

First quarter volume averaged a record 13.7 million contracts, up 37% from the year previous with volume records in its e-mini equity index contracts which experienced an increase of 72% in the first quarter year-on-year and its commodities and alternative investments volume averaged a record 3.6 million contracts per day. 

Special Achievement Award

Winner: Craig Donahue, chief executive, CME Group and Terry Duffy, executive chairman, CME Group

FOW’s Special Achievement Award goes to two men who have been instrumental in the success of Chicago Mercantile Exchange and in particular over the past few years, its acquisition of cross-town sister exchange Chicago Board of Trade. Few people need reminding of the details of the deal which saw the Board of Trade bought for $8 billion.

Speaking to FOW, award winner Terry Duffy tells of when he first knew that the monumental deal was to close. “I had a good sense it was going to happen from August 2006 when we signed the definitive agreement. I was hopeful prior to that when we established the common clearing agreement back in 2005, that was the real spoke in the wheel that got this thing going.”

Duffy has been with the exchange since 1981, while Craig Donahue began his career with the exchange in 1995. After serving as managing director and chief administrative officer, he became chief executive of CME in 2004. Duffy, has been a board member from 1995 and chairman of the board from 2002. And, in his opinion there is nowhere quite like it. “It’s a unique business and an amazing institution which creates numerous opportunities. The changes that have happened from 1981 to today in an institution which has so deep historical routes is truly amazing.”

But Duffy admits it hasn’t all been plain sailing. “After the definitive agreement I was confident, perhaps too confident, that we just had a deal. I never even dreamed an interloper would come in. There were some doubts then, anyone who says other wise would be lying to themselves”. With another acquisition in the pipeline as the exchange attempts to take over New York Mercantile Exchange, Duffy admits to getting a “little seasoned” as far as the emotions are concerned. What the next 25 years will look like in the now CME Group’s future is unclear, but in Duffy’s opinion is that the exchange is nimble and experienced enough to meet those challenges. “You have to be willing to change and prepared to change before you are forced to.”