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Grant: No, but it's obvious U.S. futures exchanges will go to the solution (10 years too late) the CBOE came to about a decade ago. The CBOE uses computer matches for their low-volume products, while their flagship products like the OEX use computer matches for "odd lot" (under 10 contracts) trades instead of going to the floor. The new Emini S&P 500 contract is certainly the wave of the future in futures. But I don't think futures exchanges outside the U.S., no matter how much they cut costs through computerized trading, are going to take away U.S-dominated markets like grains, meats, and U.S. securities from U.S. exchanges. Of course, overseas exchanges will continue to nip at the heels of the U.S. exchanges and force cost-cutting and changes. This is why we are getting more electronic trading and talks about common clearing between hated rivals like the CME and CBOT. But in the end, chauvinism and the need of the locals to preserve open outcry will prevail. The best example of this is how New York took over gold futures trading. We had a perfectly good market here in Chicago, and there was no cost savings in relocating to expensive New York, but the hometown chauvinism of the New York security firms and cash gold brokers forced trading away from Chicago to New York. There will simply be too much institutional pressure in the U.S. for overseas competition to totally succeed, and there will be too much internal pressure from exchange members for the U.S. exchanges to totally stop open outcry. |
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Neal: Do we really need futures exchanges, or will big banks take over the clearing functions? |
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Grant: Tell me, if you were a big stock house like Goldman Sachs, where would you like to do more of your trading, on an exchange floor where you have voting clout or with a big bank that may own one of your rivals like Salomon Brothers? Even in Japan, a society dominated by a handful of banks, futures trading has flourished. In this world you shouldn't say never, but the odds favor the continuation of open outcry at futures exchanges for the foreseeable future. |
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