The Anatomy of The Eurex
Friday, May 28, 2004PAUL KANGAS: The world`s largest futures exchange is having trouble muscling its way into the U.S. Eurex started trading U.S. financial futures a couple of months ago. But so far, the German-Swiss exchange has barely made a ripple in the U.S. market. And as Diane Eastabrook reports, the foreign-owned exchange says it`s only completed the first lap in a long race for market share.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is how the U.S. trades futures. And this is how the rest of the world trades them. When German-Swiss Eurex opened a sophisticated all-electronic exchange in Chicago a few months ago, it was expected to capture a huge share of the U.S. financial futures market. But so far, that hasn`t happened. Last month, Eurex traded only a fraction of the U.S. Treasury products the Chicago Board of Trade did. But the president and CEO of Eurex U.S. says the exchange is still a work in progress.
SATISH NANDAPURKAR, PRES. & CEO, EUREX U.S.: You have to realize what we are doing is we are building a full- service exchange. It takes a long time and it`s going to take some more time through the end of this year before all of those pieces are in place.
EASTABROOK: The pieces include more products, a global clearing link and regulatory approval from more European countries. Nandapurkar says once those things happen, investment banks will trade more large orders on Eurex U.S.
NANDAPURKAR: Electronic trading is a technology game and they`re building the appropriate order routing systems and the appropriate technology and risk management systems to support us fully.
EASTABROOK: But the CBOT has been on the offensive for months. The exchange improved its electronic trading system and cut fees. It also began trading some of the same products Eurex Europe has traded for years, like the German bund and BOBL.
BERNARD DAN, PRES. & CEO, CBOT: We`re going to continue to look at the marketplace, try to find gaps where risk management needs aren`t being met, create products that fill those gaps and put them alongside the key liquidity products we have today and drive growth at the Board of Trade.
EASTABROOK: Customers like Geneva Trading have benefited from the changes but are disappointed by Eurex`s performance. Still, they haven`t counted out the electronic exchange.
MARY MCDONNELL, PRES. & CEO, GENEVA TRADING: We still have screens open and watch it every day. And we think that there`s a chance down the line in a year or two, possibly, that they will start to get a little bit of a critical mass.
EASTABROOK: And industry watchers say it is in everyone`s best interest that Eurex U.S. succeeds.
JOHN DAMGARD, PRESIDENT, FUTURES INDUSTRY ASSN.: Absent competition in our business, we`re concerned that regulators would be looking at these markets from the vantage point of being natural monopolies. And as you know, natural monopolies in the United States are either regulated or they`re broken up.
EASTABROOK: Eurex says it has already succeeded in bringing more competition to the U.S. futures industry and believes it will become a more viable contender when it launches more futures products here. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
