CHICAGO -- Full-time electronic trading and off-exchange block trading are on the wish lists of institutions using the Chicago Mercantile Exchange, which is formally evaluating its future.
CME board members selected a strategic consultant May 6 to evaluate all aspects of its business and its relationship to global financial markets.
Bill Burks, a CME spokesman, declined to name the consultant or explain the consultant's role.
M. Scott Gordon, the CME chairman, announced the plan to hire a consultant in an annual letter to CME members April 23. In the letter, Mr. Gordon wrote the consultant will look at strategic direction, ownership, profit structure, corporate structure and governance, all in light of "gut-wrenching changes" in global financial services.
Presumably, the CME consultant will address the possibility of allowing electronic trading to at least take place alongside its traditional open-outcry system, if not replace open outcry.
Electronic trading is a sensitive topic for the CME and other U.S. exchanges that use open outcry, although many say adoption of electronic trading is inevitable for U.S. exchanges that want to remain competitive.
Major competitors in Europe already offer -- or plan to offer -- electronic trading during their entire trading days, not just during off-peak hours as do the CME and its crosstown rival the Chicago Board of Trade.
The Marche a Terme International de France, Paris, made the switch in April, and has seen a quick migration of 90% of its trading to the electronic method.
The London International Financial Futures & Options Exchange decided earlier this year that it would conduct electronic trading alongside its open outcry method, and let the market decide which it prefers. LIFFE hopes to introduce the electronic platform in the fourth quarter of 1999.
The Deutsche TerminB"rse, Frankfurt, has operated as an electronic exchange for years, and has grabbed significant market share from LIFFE, benefiting from lower operating costs.
Competition could come in the United States as well. A unit of Cantor Fitzgerald LP, New York, and the New York Cotton Exchange are seeking government approval to create their own electronic futures trading system.
Instituting greater use of electronic trading and allowing block trading off of the exchange, would increase the attractiveness of trading in U.S. futures markets, some in the industry say.
"The obvious thing" for the CME to do would be to allow screen-based electronic trading during the entire investment day, said Gregg H. Byers, president of BA Futures Inc., the futures unit of BankAmerica.
"There is competition and I think they need to realize it," Mr. Byers said. "Technology is driving the business like it is other businesses."
Similarly, Tim Rudderow, senior vice president with Mount Lucas Management Corp., a Princeton, N.J.-based futures manager, favors a move to electronic trading as a means to allow off-exchange block trading of futures contracts.
While he's generally satisfied with the CME's operations, Mr. Rudderow said his systematic trading on the exchange would be eased if they allowed off-exchange block trading.
As it stands now, all futures trades must be traded and cleared on their respective exchanges, a Commodity Futures Trading Commission rule that is strongly supported by U.S. exchanges.
But that could change. The CFTC in January asked for public comment on changes that would allow off-exchange block trading, and then, recently, extended the comment period.
If block trading were allowed, investors could arrange futures contracts trades directly, bypassing the pit where large trades are not easily done at a single price, but still clear the trade on the exchange.
While end-users generally favor the effort, U.S. exchanges and members have argued against it.
Todd Miller, associate director at First Quadrant, Pasadena, Calif., would favor allowing block trading, but doesn't want the exchange to switch to electronics.
Block trading would create "an added layer of liquidity" to the markets, he said.
But Mr. Miller favors open outcry over electronics. "As a trader, I've found myself more comfortable in the open-outcry environment," he said. "Open outcry seems to have a little more liquidity. In a sense, the traders hide behind their screens" in electronic marketplaces.
Resistance to electronic trading at the Chicago exchanges comes from its member owners, who largely are floor traders who earn their living through open-outcry trade.
Many jobs at the exchanges are likely to be eliminated if electronic trading is adopted.