You guys forget, the German exchange went sideways in market share in the Bund for a couple of years, when it shifted, it left the Liffe in days! A couple of people have made the point that the S&P is licensed, a valid point, but the Eurodollar isn't. What is the most heavily traded floor contract? What happens when this leaves the floor? Options aren't very easy to trade on the screen so they may stay around a little while. What about treasuries? Read this: Here
not that I really care b/c I hope maverick is correct. But most if not all the the quotes I have seen from instutional traders say they like the liquidity chicago gives them but they prefer screens and think the screens will eventually have all the liquidity. Now, lets look at trade from a friction type analysis. What is paying for the cars and and the salaries of all the people in Chicago. Why do guys fight for spots on the floor. Why do some Brokers make good money. Why have I heard so many stories about how brokers give their buddies the good trades or an accidental look. Those exchanges are so big because they give the floor trader and edge. Why would guys off the floor want to part of a system that gives the order fillers an edge. Simple economics says that that edge must be taken away by competition. If you want me to state more serious facts about the floors edge I can, but I not here to name call. Just to say. That if Maverick is right I will move to chicago and if he is wrong I suspect the guys who can adjust will be moving to warm weather. Finally, with respect to the minis, I have seen their volume and liquidty explode, and I understand that they are starting to lead the floor at times. I have also seen some rally large bid and asks of well over a thousand and frequently see 500. Again, I love trading and see the pit as the superbowl of my profession. If you think it is going to survive let me know why-- because I will happily to pay my dues and and find myself a spot on the floor.
As a former floor trader and current e mini trader I can tell Eurex will kill the chicago exchanges. I have seen how the locals screw paper day in and day out. The front run orders on the emini, it is the largest group of unethical people I have ever met. There is no way that the exchanges will work together until it is to late. Greed will blind them until Eurex has to strong a foothold. Just look at the CEO's they fired. Both of these guys were pro screen trading, but the locals wouldn't give up there scummy ways and elected new CEOs that would do anything to protect their friends in the pits. I can't wait until Eurex steals the CBOT and the CME business, just like they took all the bund business away from London.
Ok, so let me get this straight, you were trading futures on the floor where you say they were screwing paper and I presume they were profiting off of it so you must have been to. But now you were are trading the mini off the floor and paying 300% more in commisions and what are we suppose to get out of that. My guess is that you blew out your account and the mini is all you can afford. Why would you leave that money pit then? Oh and as far as the locals being unethical, I'm not so sure about that. These guys trade billions of dollars a day in contracts based on one thing and one thing only, their word. You want to see unethical try looking at the nasdaq market makers. They are the most corrupt people in the world. They are bounded by nothing. I've heard of guys on the floor eating million dollar losses due to clerical errors, the trader just busted the trade and ate the loss. Try doing that with a nasdaq market maker, good luck. The bottom line is people can hide behind a screen, they don't honor their mkts, they fade your orders. I think I would rather have 200 locals fighting for my order vs some 26 year old NYU graduate on a market making desk who wants to fuck the hell out of me and he knows he can get away with it.
The debate has continued in Chicago since I started there in 1979. The membership has been dragged towards electronic platforms, first with Globex, and today via changes in the organizations structure and governance. I believe that today the management at the Merc understands the vulnerability of their position. They have accelerated change in order to compete. Will they be successful ? I tend to think so. Still, they have bungled several opportunities to lead over the last decade .....
A good article, from one of my past clients. Nothing Jim says should be news to anyone: These issues have been ongoing for some time. Some of my old associates at the merc are at least moving in the right direction - although not as fast as they should. The merc however is at least attempting to move while the CBOT is a puzzle. If I had to guess which exchange will still be in business, or be the controling party in a merger or aquisition, I would give the advantage to the merc ....
I predict that since the Merc has gone public, and therefore has a mechanism for seatholders to retain or sell their equity, that they will list the Eurodollar and it will go great guns. The Merc will survive - especially since the Eagle software will support spread strategies for strips, packs, and bundles. I believe that Eurex will buy a U.S. exchange to gain a regulatory foothold, and will sodomize the CBOT's longer-term interest rate products. As for myself, I am a former CBOT Note and Bond trader who successfully made the transition six years ago. A business associate was a monster local in the S&Ps in the late 80s and early 90s. He also made the transition. All of that business about the pit providing liquidity for big orders is a steaming load. I've seen so many one, two, three, and five thousand-lots trade on Eurex that it truly amazes. Pit locals front-run orders and pick off paper. That's how we made our living on the floor. If you were outside looking in, you had to pay up to play. FCMs are evolving to provide more electronic platforms, research, and in the case of REFCO for example, better cross-margining between products.
These exchanges promote themselves as the purest form of capitalism, but when their cosy little monopoly is threatened, they are going to call out the politicians to make sure nobody gives the customer an even break. Oh yeah, we all feel so much loyalty to those locals who screwed us for years. That's why the e-mini's are doing so well, even though they deliberately made it an unattractive little nuisance of a contract so it wouldn't threaten the floor. Guess they didn't count on IB coming in there with lowball commish. Trade the big contract side by side and see where the liquidity is.
Let me make a point about the mini. Have you ever been to the CBOT and CME's website? Have you read their marketing campaign? Do you know who they are targeting with the mini? I'll tell you. Its the guy with 5k that can't daytrade stocks because he falls under the new PDT rules. It's the guy that is tired of daytrading stocks. It's the guy that doesn't have the margin for the big contract. It's the guy in Kansas that read he can actually make money when the market goes down by actually shorting something called the e-mini or the dow mini or the nasdaq mini. Now I know I am taking this to an extreme here but look what has happened the last 3 years in this industry. Look at how many prop firms are moving to futures from stocks. How many of your friends that 3 years ago didn't even know what a future was and now they trade the mini's on IB. Well I guess the advertising worked because every moron I know trades them. And some of these people have never even traded stocks before. The bottom line is its a new product that could get peddled to everyone in america and the big winners are the CBOT and the CME because they are racking up huge fees from it. But keep in mind, that most of the people who trade these, not all, but most would never have even traded the big contract period. This is a marketing ploy and it works. Just look at this forum. Two years ago nobody traded futures. They were all trading QCOM and YHOO and now suddenly that these stocks are in single digits they run to the futures. As far as getting screwed by locals, look, what do you want market makers to do. These guys stand on the floor of the NYSE, the CBOE, the CBOT and the Merc and they take the other side of your order. They assume all the risk. So when goldman comes in to buy 1000 straddles on UAL a day before a bankruptcy announcement these guys in the UAL pit take the other side of that trade being clueless about the news. So they wake up the next morning and see the news and now some of those guys careers are over because they are f*cked. What do you want them to do. Sell options at fair value, sell futures at parity with the electronic mkt? You tell me? Should these people be compensated at all for taking the risk that you lay on them. I guess they should work for free right. Oh and I guess the guys on the screen, I guess they will provide liquidity for free too. No spreads. I mean come on, this rhetoric is getting real old. I read it every day on these boards. The specialist screwed me over a nickel, the option mm's faded my order, the guy in the wheat pit gave me a bad fill. I wish people would realize for one sec the amount of risk these guys take so you can get on your computer every day and trade. They are forced to buy crap and sell shit that is going through the roof. They keep the system running. These guys are willing to absorb your risk and all they want in return is a spread. But thats's too much I guess. I guess it would be better to have what happened in 1998 when russia defaulted on their debts and there was no liquidity to speak of in the fixed income mkts. Yeah that was a pleasant experience. In fact LTCM was trying desperately to get out of some on their bonds and these wonderful mm's on the screen refused to make markets, they refused to give quotes. The end result. A 10 billion dollar hedge fund went up in smoke and our entire economy almost collapsed. Oh and they called it a liquidity crisis. I think too many people take for granted the liquidity they get every day like its their right. It's not a right, it's a privilege, and don't forget for a sec who gives you that privilege every day.
If the spoos pit is always there to provide liquidity, what happened to Soro's order on Thurs morning 10/22/87. The screen is not the only place the bids get pulled.