|The Future of Currency Futures: Tradition and E-Trading To Try Life Side-by-Side At CME |
By Christopher Faille, Reporter
02/13/2001 10:27:45 AM ET
Rye, NY (HedgeWorld.com)—The Chicago Mercantile Exchange announced Feb. 8 that it will extend electronic trading hours for its currency and cross-rate futures contracts, effective April 2, so electronic trading will proceed side-by-side with its open outcry counterpart.
At present, currency futures trade after hours from 2:30 p.m. to 7:05 a.m. (Central Time) on the GLOBEX2 system. Under the plan, they will trade on that system for 23.5 hours a day, from 2:30 p.m. to 2:00 p.m., except on Sundays, when electronic trading will not begin until 5:30 p.m.
The CME will place additional GLOBEX2 workstations near the currency pits and will make GALAX-C hand-held units available to traders who request them.
The CME’s demutualization documents, made public last year, state that open outcry in any market will continue so long as the open outcry portion of that market is liquid, defined as involving at least 30% of average daily volume in that market and 30% of its open interest.
“In the broadest possible terms,” said spokesman William Burks, “the exchange is trying to position itself so that whatever the customer wants is what we provide.”
Currency futures have been traded at the CME by open outcry for nearly 30 years. In August 1971, President Nixon ordered an end to the policy of gold redemption. In the jargon of the time, he “closed the gold window” that had been left open for foreign governments under the Bretton Woods fixed-exchange-rate system. This created precisely the sort of uncertainties that financial markets are best at addressing.
Just nine months passed between Mr. Nixon’s order and the institution, in May 1972, of currency futures, the world’s first financial derivative product, at the Chicago Mercantile Exchange.
In the first full year of such trading, 1973, volume was a mere 436,374 contracts. One has to multiply that volume by 44 to get the Y2K volume of 19.3 million contracts.
Separately, on Thursday, the CME reported a net loss for the year 2000 of $5.9 million, compared with a 1999 net income of $2.7 million. Management attributed the loss to major investments in technology, and substantial nonrecurring expenses associated with CME’s transition into a shareholder-owned, for-profit corporation.
The CME reported record annual volume of 231.1 million contracts, representing an underlying value of $155 trillion, nearly 15% of that volume traded on the GLOBEX2 system.
“In 2001, we will focus on product development, improvements to our electronic and floor-based trading technologies, and continued re-engineering of our processes to capture cost efficiencies for the exchange and our customers,” said Jim McNulty, president of the CME.