The argument that Pimco will move to Swaptions on the screen it ridiculous. Pimco will use whatever the cheapeast and easiest method of executing their position is. They could use swaptions now, and likely do for some trades. All they have to do is call any New York Investment Bank's trading floor right now, ask for a market, and execute a transaction. Why would they use the floor then? Because the bank is educated and will screw them twice as much as the floor will.
Agree that a loss of business will hurt the exchanges. But for the most part, I would assume that most of the markets that PIMCO uses are already dominated by institutional users. For example, few locals in the eurodollar pit take the other sides of institutional trades, because for the most part, institutional orders get filled with other institutional orders in the Eurodollar pit. Locals can't trade the volumes institutions need in Eurodollars. As for pit traders making a market your wrong. Brokers often yell at the pit for a market (i.e, "cmon, give me a fu*!n market" ) when it's needed, especially if something like sept. 11 happens. The difference is locals can't hide or turn off their screens and phones. They have to face the pit and brokers.
Maverick74, I ddon't disagree that the e-mini's have brought in many smaller traders. But there still is a gaping hole in the CME's product lineup, that being a full-sized S&P contract that is traded on globex in RTH. I think there are an awful lot of mid-sized players who trade the mini's but would prefer to trade the big contract if it were available. I figure I pay about double the commish to trade the mini's, but it is worth it to avoid the hosing I used to get with the floor. That market looks to me like lowhanging fruit for Eurex or someone else to pluck.
I thought I'd let this post run a little bit before weighing in. My business associate was long 200 S&Ps the morning of the bloody crash of '87. He sold out the entire pit and walked out. After his clerk carded up the trades, he was still long 12 contracts, and it cost him about 120K. He said there was NOTHING down below. Where were all the locals making markets??? No bids. I was in the bond pit during the Gulf War. I was heavily involved during the treasury announcement on Bonds as well as Sept. 11. Let me assure you that locals were not offering contracts. Please be aware that locals were not making markets when the brokers really needed them. I speak from the inside looking out. Locals only make markets when it suits them. They are not obligated to make markets in the Chicago futures pits. Same as the brokers. They will fill orders when they can... if the order can't get filled, it is "unable". The statement that 450,000 E-mini S&Ps trading a day to accomodate small retail traders is pure nonsensical rubbish. Friday I sold a 250 lot in the ES to hedge a long position in GE stock. Why didn't I sell a 50 lot in the pit?? Because I didn't want to pay a desk fee, floor brokerage, and pay up a full point in slippage. 25 at the quoted bid, 15 at .50 down, and 10 more at .75 down. On the screen - I see the bid, and hit them ALL. NO PRISON SEX INVOLVED. NO DEGRADED, ABUSED FEELINGS AFTERWARDS. Myself and about 3,000 other big traders, arbitragers, and index spreaders love the e-minis. Oh, and the Merc knows it. We own seats, and we won't use the pit. We use our memberships to get cheaper Globex rates. I am a size trader, and let me make this perfectly clear... index arbitragers, Wall Street studs, basis traders, funds, big swinging dicks, and banks absolutely LOVE the screen. You see them, and you take them all. Fair for all involved, except for floor brokers and scumbag locals. Somebody said that he really isn't interested in fixed income. Well, it makes or breaks the Merc and the Board. It's 75% of their volume. If I just bought $10 M of Cantor OTR TY, I will not try to sell a 100 lot in the pit. Desks fees and floor brokerage are expensive, and I may not get all of them off. I will get them on the screen, however. If you trade size on a frequent basis, the screen is pure goodness. And my FCM is better off for it, too. ALways try to scrub off those nasty, itchy parasites.
Nitro, Bone is talking about the 50 BIG contracts he would execute in the pit ... Bone, I never got an answer from you BUT I do agree 200 % with what you say..... some numbers ; average(from beginning of the year) best bid/best ask size for E-mini S&P : 200 contracts 1 year ago this number was around 40 contracts average cumulative market depth 5 levels deep : 2200 contracts You DON'T need the pits for doing size.......
Yeah Nitro I would love to hear what happened to the other 200 too. My guess with the size he is quoting on the bid he had to go down about 8 ticks to fill that small order. Yeah that's a good fill aright. Bone, hey buddy look, i don't know you from Adam so I'm not going to attack you here. Just answer me a couple of questions ok. One, I guess when you traded in ten year pit or wherever you were you were one of those scummy locals too right. Screwing all the paper were you? Or were you one of the good guys? Next question, if what you say is true, and all these big swinging dicks love to trade the mini's on the screen, and the locals are just screwing everybody right and left, then why in god's green earth are people still sending their orders to the floor? Huh? Can you answer me that? Why are the pits full of locals? Why are the pits full of paper? Why is everyone so willing to get ripped off I mean heh, they get these great fills on the screen so why go through all the trouble of sending your order to the floor? And please don't tell me they don't care about money or they don't know any better because you and I know better. I am waiting to hear your response to that, I'm sure it will be good. Last question, when you traded in the fixed income markets what was your strategy? surely you were not a directional player or were you? And if you weren't and you were doing spreads how could trade if you were buying and selling at parity, you have to make a spread. For the last time I'll say this, whether you are buying a stock, option or future, you have to pay a spread. Now, if the powers that be will let you trade off a customer order book then spreads can appear to be very narrow. However those orders have no obligation and are not required to stay on the screen because they are customer orders ie the many bids and offers you see on the e-minis. However if a market maker or specialist or a local is making a market for you he is required to honor his mkts. By being required to honor his mkts he is taking much more risk then someone who can post a bid and pull it or post an offer and pull it. If he is taking this extra added risk he will be compensated for it or.....he will not particpate in the process because there is no advantage for him to do so. Why would anyone want to take any risk if he had no upside. Just doesn't work that way. This seems like such a simple concept yet many of you don't seem to understand it. I can't buy a car at cost, I can't buy a beer at cost, I can't buy a house at cost, whoever took the risk to make the product is going to want some margin of profit. Yes, that includes the guys on the screens. There is no good guy or bad guy, there is a guy that is on the other side of your order. I can asure you that if his marup was too high, no one would buy his cars, his beers, his house or his futures contract, they would take their business elsewhere and his job would cease to exist hence the world of capitalism and survival of the fittest.
Nitro: You're a good man. Maverick: Got your GED yet? The spelling, the grammatics... it's bad. Really bad. I'm sure you're intelligent. Just take your time.