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Financial firms to launch futures trading venture

02 January 2008  |  6600 views  |  0 globe swirly

News that a consortium of banks and trading firms are teaming up to establish an all-electronic futures trading exchange sent shares in CME Group tumbling over the holiday season.

CME Group's stock fell $16.75, or 2.4%, early last week following a statement released by the consortium saying that they intend to launch a low-cost alternative futures trading operation in 2008.

The new venture looks set to compete with the Chicago Mercantile Exchange, which is the largest futures exchange after its takeover of Chicago Board of Trade last year.

The consortium says US Treasury futures are expected to be the first product launched by the new venture in 2008, with additional products expected later in the year.

Bank of America, Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank Securities, JPMorgan, Merrill Lynch and Royal Bank of Scotland are among the 12 firms teaming to launch the start up.

Chicago-based trading firms Getco and Peak6 and hedge fund Citadel are also investing in the new exchange, which will be powered by technology developed and supplied by eSpeed.

Each firm involved in the project has agreed to take an equity ownership stake in the new exchange. Terms were not disclosed.

The consortium expects to appoint a chairman of the new exchange's supervisory board in early 2008. In the meantime eSpeed's current chief operating officer Paul Saltzman will serve as acting chief executive officer as the exchange conducts a search process for its top management positions.

The new venture is not the first to take on the Chicago exchanges in the futures market. Others have tried and failed to break CME's stronghold, including Cantor Fitzgerald which launched its electronic exchange for US treasury futures, called Cantor Exchange in 1999 and BrokerTec which launched online futures trading outfit in 2001.

Most recently Swiss German derivatives exchange Eurex launched a Chicago-based exchange in 2004 but the unit failed to capture a significant share of the market and struggled from its launch. UK hedge fund manager Man Group acquired a 70% stake in Eurex US in July 2006 and renamed it US Futures Exchange (USFE). The venture now focuses on providing products for hedge funds and retail investors, rather than competing against the established futures exchanges in Chicago.

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