Issue #43
Last Update December 24, 2005
Business and Finance Futures Industry Association Boca '05 by David Katz April 18, 2005 The Futures Industry Association is the major industry body for commodity exchanges, brokers and traders. At its annual meeting in Boca Raton in March, it was clear that several trends evident in prior years were continuing, and in some cases accelerating. These trends include the growth of round the clock trading, the establishment of access points abroad for trading on US exchanges, the growth of electronic trading, and the conversion of domestic exchanges from membership organizations to publicly traded corporations.
Most of these trends are interlinked. Round the clock trading is facilitated by electronic trading platforms and also by overseas points of presence and common clearing arrangements with overseas exchanges. At this point in time, the flow of money and risk is hindered neither by national boundaries nor by the clock.
The Chicago Mercantile Exchange (CME) has access points, especially for its currency contracts, in Tokyo, Hong Kong, Sydney and London, in addition to its main base in Chicago. The Chicago Board of Trade (CBOT), through its association with the electronic platform LIFFE Connect, has points of entry in 26 countries. The New York Mercantile Exchange (NYMEX) has opened a trading floor, NYMEX Europe, in Dublin. European exchanges are doing the same thing in reverse, establishing trading and clearing operations and points of presence in the US. As an example, MEFF, the Spanish financial futures and options exchange has acquired an electronic hub in Chicago, allowing substantial savings in communications costs for domestic traders. In addition, as membership rules around the globe become liberalized, American FCMs and brokers are increasingly acquiring seats on foreign exchanges.
Dublin has become something of a hub for international finance. Its International Financial Services Center, besides hosting the NYMEX Europe trading floor, is also home to hedge funds, insurance companies, mutual funds, stock brokers, treasury operations and finance and leasing companies. Dublin's attractions for these firms include low cost, EU access, English speaking workforce and good communications with the UK, North America and the European continent.
The conversion of domestic exchanges to publicly traded stock corporations is continuing with the demutualization of the CBOT, recently approved by the membership. The CBOT will be restructured as a for-profit, stock based holding company and a membership exchange subsidiary. Following an initial stock distribution to current exchange members, a public offering of common stock in the holding company is contemplated. This is the course taken by other exchanges, and is driven by the same need for access to capital that converted brokerage houses in the 1950's and 60's from partnerships to corporations.
Another trend visible at the FIA Boca meeting is the expansion of product areas. New ethanol contracts, currency instruments, binary options and other innovative offerings were much in evidence. Reauthorization of the Commodities Futures Trading Commission (CFTC), the regulatory body overseeing the futures industry, whose mandate expires soon, was another topic of discussion. Reauthorization is expected, although some changes may be mandated. Normally, the CFTC is overseen by the Agriculture committees in Congress, but overlap issues with the SEC and the expansion of futures trading in purely financial areas may bring other Congressional interests into play and result in some boundary changes between the CFTC and the SEC.
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