The ES is too small a contract. If you're doing real size the commish becomes a factor. Ideally, the CME or someone else will introduce a full-sized electronic contract. I can see the current ES getting squeezed out at some point. The small spec's will prefer the ER2, the big players will want a full-size contract.
You should be able to execute that more easily in the ES - you can see the size bid/ask at 5 levels below/above current bid/ask and can immediately see how much the market can handle and what your fill will be if you execute at market.
when you are a clearing member of the exchange (ie big player) you part own the exchange. costs are less of an issue - even v some big prop trader who does not clear himself. splippage is a bigger cost to these folk than transaction fees.
I think that the CBOT's new big DJIA future is another nail in the big S&P500 futures coffin. CBOT are obviously not trying to take liquidity away from their $5 and $10 DJIA futures but rather trying to lure business from the CME and so their big future may tempt some big S&P500 proxy funds.
Personally, I wish the sharks would continue to swim in their own pool. Those guys certainly don't have my interests in mind. I wish the pit would never stop. As more and more huge trades fly by on the time and sales window, I see the inevitable happening soon.
guy, very good analysis. Wrt "What keeps people trading the SP?" A reason why many bigger players preferred the SP vs ES is the cost issue. CME used to charge (and still does to a point) ABSURD fees for the electronic contract. These costs really add up if one trades BIG size. Also, the tick-size issue 0.1pt vs 0.25pt. I think those 2 factors support the pit, but as you pointed out, trends are in place.