Assuming the lease rates are within normal bounds, is there any merit to buying a seat on CME/NYMEX/COMEX, as opposed to leasing? For example do the seats still correlate with activity in the underlying contracts, as they used to back in the days of pit trading? Any other factors to consider? At the moment the seats I'm looking at are reasonably cheap, and I'm fairly bullish on the prospects for trading volume growth in the long-term. Any advice from people who have owned seats or know much about it?
I haven't owned a seat, but I used to spend a lot of time looking into the benefits of leasing/ owning and the various membership classifications. I always found the CME Group support staff pretty helpful and trying to get all those questions answered. Have you contacted them yet? They have a support line specifically for membership questions.
1) How do you think the seat price correlates to the CME stock price and the level of the S&P-500? 2) Do you expect to save a lot of money on reduced exchange fees by owning a seat instead of leasing? 3) Are you tired of leasing and want ownership? 4) You probably won't have to be concerned with the CME ever being a takeover target and seat prices being bid up in the process. 5) If the stock market remains bearish until the end of 2013, according to historical guidelines, seat prices should suffer in the interim, regardless of volume gains and market volatility. We'll see. :eek:
The main thing to consider is that seat ownership in these exchanges no longer represents equity ownership. Seat ownership only conveys the right discounted exchange fees, with the amount of the discount determined by management of the exchange. Therefore, it is hard to predict the future price of seats, since it is possible for the exchange to change the pricing structure at any time. For the CME, you might want to consider an Electronic Corporate Membership under CME Rule 106.R. It is free (just some paperwork and an application fee ), and allows for pretty good rates (about $.50 per side for most CME products).
Sadly the waiver of the membership requirement for ECM-W (the volume discount scheme you refer to) expires in Dec. Therefore from Jan 2011 you'll need to either buy or lease memberships in order to qualify for ECM-H.
Agree with a lot of these guys. I wouldn't take on the risk of the price of a seat unless you're saving a lot by owning. I know several people who are saving around a dime a contract and when you're trading 250k contracts at the board or CME, that seat will pay for itself in a real hurry. Otherwise, think lease rates are pretty reasonable, so would stick to that if you're not sure what to do. Also, looking at prices at the board and CME, the prices have bounced from the bottom, so may not be too aggressive.
I Just bought an IOM in March. Seat prices fluctuate depending on the volatility in the market as do lease rates.
At the moment lease rates are about 7-8% of seat prices for what I'm looking at. Generally I would hope to be able to make more than 8% per annum on my capital with less risk, so initially leasing seems better. However, I think there's some benefit to locking in your price by owning - lease rates could potentially increase significantly in future. Also I think seat prices could increase somewhat over time. Finally, the bid-offer spread gets wide at times, so I was thinking that sitting on the bid waiting for someone who wants to sell in a hurry, could save some dough as well.
Wide range on the annual percent cost of a lease. Must be a reason CBOT division seat lease rates are so high. Seat Last Sale Lease CME $750,000 $1900 3.0% IMM $443,000 $950 2.6% IOM $171,500 $550 3.9% GEM $38,500 $275 8.6% CBOT $225,000 $1501.75 8.0% AM $88,000 $451.53 6.2% GIM $34,000 $282.50 10.0% IDEM $14,000 $113.50 9.7% COM $26,000 $279.23 12.9% NYMEX $350,000 $1700 5.8% COMEX $63,000 $300 5.7% OPTION $9,500 N/A N/A