Au Revoir Globex
Last year MATIF chairman Gerard Pfauwadel woke up a sleepy conference
call on inter-exchange linkages with the following comment: "I have
detected 39 public announcements of linkages, but in fact the reality is
that currently there are only two that can be identified as truly successful."
One was the 10-year pact betwixt the CME and SIMEX. And the other was GLOBEX,
the after-hours electronic market developed by Reuters for the CME, of which
MATIF was the lone other partner.
Last month Pfauwadel's count of successful links dropped to one, after
he himself declared that MATIF would not renew its participation in May
1998. GLOBEX, which reportedly cost $100 million for development, has not
lived up to the original expectation that it would attract a multi-exchange
following. "As long as the mainstream is trading open outcry, there
is absolutely no reason to move dramatically to a global electronic network,"
Pfauwadel said as he pulled out. Nonetheless, MATIF will join with the Paris
Bourse's NSC electronic system for off-hours use.
The CBOT's Inflation Trade
Like most other business organizations, the Chicago Board of Trade customarily
rails at perceived interference by the federal government, usually regulators
who sit on new contract applications. Last month, however, the CBOT should
have got on its knees and thanked Washington for delivering the chance to
invent what could be one of the best new contracts in years. Just days after
the U.S. Treasury's unveiling of plans for its new 10-year inflation-indexed
Treasury bond, the CBOT unfurled a line of corresponding futures and options
contracts designed to give investors a new kind of inflation trade. According
to CBOT second vice chairman Richard Sandor, these contracts are tantamount
to a "synthetic CPI" that will allow traders to take positions
on this key economic variable for the first time in history with "real
"Their chief merit from a trading point of view is that they will
allow cash market participants to hedge effectively against volatility in
U.S. long-term real returns," adds CBOT president Pat Arbor. After
approval by the CFTC, futures contracts will trade in multiples of 1/32
point per 100 points, and par will be on the basis of 100 points. Options
will trade in 1/64 point per 100 points. Both contracts will trade on the
standard quarterly expiration (March, June, September, December).
Swedes Try Again
Nobody can fault the Stockholm-based OM Gruppen AB for a want of ambition,
or technical expertise in exchange technology, which is embedded in client
locations as far flung as Hong Kong and New York. The Group has also been
aggressive in applying automated trading knowledge to its own OMLX (London
Securities & Derivatives Exchange). Last month it announced that it
would set up a bourse there for wood pulp because the pace of "price
fluctuations have become more drastic," said a spokesman. Whether there
is a big enough market for PULPEX remains to be seen. Last year OM Gruppen
launched three new equity volatility futures contracts on the OMLX, based
on FTSE 100, the DAX and a Swedish benchmark, respectively. Reportedly these
have been quite slow to catch on.
Dow Jones Wakes Up
In the listed derivatives equity index game, the biggest and oldest name
in stock market indicators has been curiously absent until last month. Getting
over its decade-long aversion to the futures market, Dow Jones Co. finally
last month got a toehold in a market dominated by the benchmarks of the
Financial Times and Morgan Stanley when both the CME and the Pacific Stock
Exchange began trading the Dow Jones Taiwan Index.
Dow Jones began computing various global indices several years ago, after
it was clearly too embarrassing to be seen quoting rival Financial Times
as a descriptor of market moves. "As a global publisher of business
information we needed our own index, if for no other reason than to report
financial news from a global perspective," says index developer John
Prestbro. Dow Jones unveiled its first U.S.-industry-specific indicators
in 1988, and in January 1993 went public with a capitalization-weighted
global index comprising 29 different countries, each designed to capture
about 80 percent of investable market capitalization.
The new Dow Jones Taiwan index had competition from the very first trading
day, when the Singapore International Monetary Exchange began trading derivatives
on a new Morgan Stanley Taiwan Index. In the subsequent weeks, it looked
as if the volume was greater in Singapore. Dow Jones may find that winning
the futures index wars is a tougher game than it originally thought.