Futures Crossing to Wait
Broker Reaction
But if the CBOT/CME merger has rankled FCM's nerves and the Icap move has fired their resolve, they aren't saying so publicly - yet. Executives of futures commission merchants R.J. O'Brien, Calyon Financial, Rosenthal Collins and the Man Group declined to comment for this article, as did the exchanges.
Still, in comments made before the CBOT/CME merger was announced, a derivatives trading firm executive noted, "You can't have a business like the CME on operating margins of close to 60 percent" and not expect their monopoly to face competition.
To begin to challenge that monopoly while overcoming the legal obstacles, some brokers may be considering investing in futures exchanges. In July, for example, the Man Group took a 70 percent ownership stake in the U.S. Futures Exchange. But according to executives, the company will reduce its stake in the exchange over time and does not intend to compete with existing futures exchanges. This reluctance to compete with the exchanges may be the result of past failed attempts to take on the CME-CBOT powerhouse, such as the BrokerTec Futures Exchange, which began trading in late 2001 but was closed by late 2003 due to a lack of liquidity.
Besides the obvious legal and structural hurdles to change, broker conservatism also may arise from the fact that, unlike in equities, there is not as much institutional pressure for big changes in the futures world, suggests IDC Financial Insights analyst Gene Kim. "But any trading market where there is any institutional interest begs for crossing networks," Kim says. "I don't see how you can deny that pressure in any trading market forever."
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