CHICAGO -- The outlook for the futures and options industries and the exchanges that handle their transactions was a primary topic of discussion at the Futures & Options Expo '99.
A panel that included the heads of the Chicago Mercantile Exchange, the Chicago Board of Trade and the Chicago Board Options Exchange discussed issues such as demutualization, deregulation and the formation of alliances with foreign exchanges.
Deregulation is a very important issue with futures exchange officials. They were disappointed with the findings of the President's Working Group on Financial Markets, which released its report the day before the start of the conference held Nov. 10-12 in Chicago.
The CME, the CBOT and the New York Mercantile Exchange issued a release Nov. 9 announcing their unhappiness with the report, which called for leaving over-the-counter derivative products unregulated but didn't deal with easing the regulations under which the exchanges operate.
"Any attempts at serious regulatory reform should be fair and even-handed for OTC and exchange markets, and the Working Group's report falls far short of meeting that standard," the exchanges said in the release.
Taking time
CME Chairman Scott Gordon said at the conference that the release reacting to the working group's conclusions "was intended to be preliminary. The process (of working toward deregulation) will take some period of time."
However, he added, "This report was ostensibly about OTC derivatives. The ability for us to get (regulatory) relief quickly is of paramount importance. I don't want us to get relief after someone else."
CBOT President and Chief Executive Officer Thomas R. Donovan said at the conference the exchanges now "have their hands tied behind their backs" compared to the players in the OTC derivatives market.
The fate of open-outcry markets also was discussed. Mr. Donovan said that with the CBOT's alliance with Eurex, the German-Swiss electronic derivatives exchange, "we will give our customers the choice of trading in the world's best open-outcry or the world's best electronic exchange."
By midyear 2000 there will be 5,000 CBOT-Eurex terminals worldwide and traders will be able to make their choices.
The CME's demutualization plan, Mr. Gordon said, is on target and will "provide currency for working with new partners." The CME recently announced an alliance with the London International Financial Futures and Options Exchange.
David Brennan, chairman of the CBOT, said the exchange was looking into the demutualization process and finding it difficult. A task force is working on a demutualization plan.
As the discussion of demutualization was ending, William Brodsky, chairman of the CBOE quipped, "If the Merc and the CBOT become for-profit exchanges, we'll trade your options."
Mr. Brodsky spoke about the surge of competition in options markets as the options exchanges trade contracts that had once been in the exclusive domain of individual exchanges.
"This has stimulated competition in the industry. It's the most intense competition I've ever seen for business," he said.
Individual stock futures
The trading of futures on individual stocks, which the futures exchanges are not allowed to do, also caused lively discussion.
Again, it is considered a fairness issue by the U.S. futures exchanges. "The disparity is such that the only people hurt by not trading futures on individual stocks is the public," said Mr. Donovan. Foreign exchanges can do this, he added, "the only ones who can't do it will be the Americans."
"This is a competitive issue," said Mr. Gordon. "We will be able to show that futures on individual stocks will not pose risks. This is a public policy issue. There should be free and open competition and I'm sure we will have many debates."
The alliance between the CME and LIFFE was discussed by LIFFE Chief Executive Hugh Freedberg at a luncheon during the Expo.
"The joint venture is a completely for-profit entity out of the Merc's governance structure so we will have no problems with the open-outcry area," he said.
LIFFE in transition
LIFFE moved this year to become an all-electronic exchange, with the electronic trading platform called LIFFE Connect. The last of the open-outcry pits were to close this month and the last phase of the plan's implementation will be in April, Mr. Freedberg said.
With its obtaining a no-action letter from the Securities and Exchange Commission, LIFFE also is getting ready to place electronic trading terminals in the United States.
Mr. Freedberg said 30 U.S. institutions have committed to using LIFFE Connect; he wouldn't identify them.
Commissioner James E. Newsome of the Commodities Futures Trading Commission described the commission's wide-ranging plans for regulatory change, to lessen the regulatory burdens now on the futures markets.
On Dec. 2, he said, the CFTC will hold a roundtable discussion on the "future of futures."
