Eurex Sets Sights On U.S. Options Trading By 2003

Discussion in 'Index Futures' started by freehouse, Aug 5, 2002.

  1. Eurex Sets Sights On U.S. Options Trading By 2003
    Wall Street Letter
    --Raul Gallegos

    Eurex, the largest and most liquid exchange-traded derivatives market in the world, is looking to create a Eurex Options Exchange in the United States. Executives and board members at several floor-based U.S. options exchanges said Eurex has aggressive plans to create such an exchange by fall of 2003, either through acquisition, partnership or a platform built from scratch. "They have the resources, the commitment and the desire," said a board member of the Chicago Board Options Exchange who has spoken with Eurex officials about their plans. Speculation last week pointed to the Pacific Exchange as a possible acquisition target for Eurex, but many observers said it could be approaching other options exchanges as well. Many agreed such a move would be a cheaper entrée into the U.S. market than the creation of an exchange from scratch.

    Uwe Velten, a Eurex spokesman in Frankfurt, Germany, acknowledged that Eurex is expanding its business and looking to trade U.S. products. However, he said, for now Eurex will continue "consultations with customers in the U.S. to determine the best way to offer them trading of U.S. products." He added: "If a partnership [with a U.S. exchange] would help achieve these goals then we would enter into one. But we do not want to contribute to any speculation."

    Some options industry insiders believe it would make sense for Eurex to establish a partnership with an existing U.S. exchange. Insiders at the Pacific Exchange said they had no knowledge of any discussions with Eurex but did not rule out the possibility. Dale Carlson, a spokesman for the exchange, said "I will neither confirm nor deny any talks that may or may not be taking place with other markets." With seat prices at options exchanges facing all-time lows, observers speculate that it would be easy for a foreign exchange to make a quick move.

    © Copyright Institutional Investor, Inc. 2002
  2. Trajan


    The Eurex already has a presence for trading interest rate products here in the U.S. Also, it wouldn't surprise me if Euronext looks to make a similar move. How many exchanges can this country support?
  3. just21


    Euronext software is being used by the Boston Options Exchange.
  4. Trajan


    Doh! I thought it was just the OM software. Looking through the site again, I cleared up an issue which was debated on another thread.

    So, customers can't participate in the price improvement process.
  5. Trajan


    This explains some of it.


    a/c/e Gets A Makeover

    The Chicago Board of Trade (CBOT) has restructured its technology agreement with Eurex so it no longer has to pay development costs for its electronic trading platform.

    In 2000, the CBOT partnered with Eurex to secure the use and joint- ownership of the Swiss-German exchange's trading system, and to share the cost of ongoing technology developments. The agreement, called a/c/e, also included non-compete clauses which meant neither exchange could launch products which competed with contracts already listed on the other exchange.

    The price the CBOT paid for the Eurex system was never disclosed although it was widely believed to have almost entirely drained the exchange's coffers, and the ongoing wrangles about who should pay for which system developments have been a thorn in the sides of both firms since the original agreement was made.

    Under the new agreement, the CBOT pays an undisclosed fixed fee for the Eurex system and a variable fee depending on the amount of screen-based business done on the Chicago exchange. The CBOT does not pay any development costs and it has given up its rights to co- ownership of the system. Additionally, Eurex can now list US dollar denominated products and the CBOT can list Euro contracts, apart from products that would compete in either exchange's core government bond futures and options business. The agreement is effective until January 2004.

    David Vitale, chief executive and president of the CBOT, says the agreement is not at all cost driven. "European exchanges have evolved faster than those in the US in terms of electronic trading. As a result, the previous agreement created constraints on both Eurex and the CBOT as each tried to develop their business, because both were developing at different rates," he says.

    "The question of which exchange should shoulder the costs for system developments was always a grey area because enhancements needed at one exchange may not have been applicable at the other," adds Rudolf Ferscha, chief executive of Eurex. "The new agreement clears up all confusion in this matter," he says.

    Eurex is now free to list US dollar denominated equity products, but it says it will conduct with its members before deciding which contracts to launch. It already offers Euro-denominated futures and options based on US indices, and US stock options.
  6. Trajan


    From another one of their websites, I found this:



    The cat who got the cream during IDW was undoubtedly this year's star exchange turn, the International Securities Exchange (ISE) of New York which is simply savaging the open outcry opposition in the US equity options business. Those folk who still believe that open outcry has a future in the US due to those highly nebulous "special circumstances" suggested by otherwise sensible but in this case sadly deluded exchange chairmen ought to peruse just how ISE is tearing away at the soft underbelly of CBOE et al as it heads towards what may yet be an unstoppable rise to lead the US equity options markets. Moreover, will ISE bother to take over its competitor markets once they fall below viable thresholds of business? Why frankly should they bother?

    As I outlined some months ago in The Promiscuous Investor (and excerpted here in appliederivatives ) in the stages of exchange development, a phase of outright competition will come to terrorise many markets throughout the world. Just as Eurex is moving predatorily towards the UK equity options fiefdom of LIFFE (see News Analysis) - and much of the rest of the Euronext LIFFE options marketplace, so too ISE is a genuinely lean, mean predatorial machine which has shown its spots in recent months with what I can only imagine is a power sufficient to terrify many of its competitor marketplaces. Indeed, if the US can make it easier to be both an equity options exchange and a derivatives marketplace for other products, what is to stop ISE taking its lean business model and attacking other Chicago/New York citadels?

    It may look like they're in the pits from the equity marketplace perspective, but indeed at long last the relative invincibility of open outcry options markets are being challenged to the point where the smart business is undoubtedly migrating apace to electronic markets. In future years we may wistfully recall the arguments of the turn of the millennium concerning just what a CBOE/CBOT conversion right really was all about. Indeed, we may recall wistfully just what it was like to have a CBOE and CBOT. Certainly, it is not an exaggeration to say that both look in mortal danger unless they understand that they still need radical surgery if they are to have a chance of surviving.
  7. Trajan


  8. Trajan


    Reading through the stories makes me think that the Eurex is going to make a move in the U.S. The key point here is that their renegotiated agreement with CBOT frees them to trade dollar products.
  9. km2000



    I thought the agreement between Euronext and Montreal was just for GLOBEX access (back in 1999) and that Montreal would be supplying the technology for BOX. What's the connection with Euronext and BOX?