banks/firms plan to launch their own futures exchange to lower commissions

[3monkeys 10]

Competition is always good. Why was there even a CME CBOT merger in the first place?

 

NEW YORK (AP) -- CME Group Inc.'s stock slipped Monday after a group of banks and trading firms said they plan to launch their own futures exchange to try to garner cheaper commissions.

Late Friday, 12 financial institutions including Merrill Lynch & Co., Citigroup Inc., and Bank of America Corp. unveiled a plan for an electronic trading exchange. Initially, the exchange will host trading of futures contracts linked to U.S. Treasury bonds and then branch into new products later next year.

 

CME Shares Slip on Rival Exchange

Monday December 24, 5:13 pm ET

Shares of CME Group Slip As Banks Plan to Launch Rival Exchange to Squeeze Commissions

NEW YORK (AP) -- CME Group Inc.'s stock slipped Monday after a group of banks and trading firms said they plan to launch their own futures exchange to try to garner cheaper commissions.

Late Friday, 12 financial institutions including Merrill Lynch & Co., Citigroup Inc., and Bank of America Corp. unveiled a plan for an electronic trading exchange. Initially, the exchange will host trading of futures contracts linked to U.S. Treasury bonds and then branch into new products later next year.

 

The foray clearly intends to muscle in on CME Group's terrain. CME Group, which operates the Chicago Mercantile Exchange and the Chicago Board of Trade, handles almost all trading of Treasury futures, analysts said.

 

CME Group's shares slipped $16.75, or 2.4 percent, to close at $694 Monday.

 

The concern is that this rival exchange -- which will be powered by eSpeed's electronic platform -- will charge cheaper rates for facilitating trades and steal market share, forcing CME Group to cut its commissions or lose dominance.

 

This is not the first time CME Group has faced an incursion into its Treasury futures trading business. ESpeed's Cantor Exchange in 1999, BrokerTec in 2001, and Eurex U.S. in 2004 all tried to loosen CME's stranglehold on this product but all failed.

 

The futility of these efforts shows how difficult it is to cultivate the customers, trading volume and liquidity needed to run a viable exchange hosting Treasury trading, said Wachovia Capital Markets analyst Jonathan Casteleyn.

 

While Eurex U.S. put a small dent in CME's Treasury business, the exchange cut prices about 20 percent to protect its turf and then raised prices again once the Eurex threat was extinguished, Casteleyn noted.

 

Further, CME's Treasury trading is protected by an even wider moat than it was two years ago. When Eurex's Treasury trading launched, CME Group hosted trading of 2 million Treasury contracts a day. That amount has since doubled.

 

"It is unlikely to have more success than past attempts," Goldman Sachs analyst Daniel Harris wrote in a client note, referring to the startup exchange.

 

 

[brownsfan019 17]

If this cuts retail rates - permanently or otherwise - I'm all for it!! Doesn't sound like history is on their side, but there are some hefty names mentioned in the article. You know the CME is not happy about this and we'll see how much on the offensive they go to keep business there.

 

If this new exchange can offer lower rates with the same reliability as Globex, I would consider trading/routing orders there. Maybe this will be something like stock traders do - deciding what exchange to route their order to.

[brownsfan019 17]

http://www.chicagotribune.com/business/chi-sat_exchange_1222dec22,0,1244161.story

 

There's a link to a story on this.