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Thank you for your kind introduction. On behalf of the Chicago Board of Trade and its members I would like to thank you for inviting me to speak here today.
Also, please be assured that on this hot, beautiful, summer day, I am going to attempt to abide by my two rules of public speaking--the first being to speak up loud and clear; the second--to sit down as soon as possible.
I wish to speak to you today about the role the Chicago exchanges play for the City of Chicago. The CBOT®, the Chicago Mercantile Exchange, the Chicago Board Options Exchange, OneChicago, and the Chicago Stock Exchange are an integral part of the Chicago business community. According to the most recent study by the Civic Committee of the Commercial Club of Chicago, over 150,000 jobs are generated in our city by this sector.
The derivatives industry in Chicago maintains over $85 billion in overnight deposits in local banks generates over hundreds of millions in federal, state and local taxes. In addition, they remain major tourist attractions for the City. In short, the exchanges are a vital to the overall economy of Chicago and the State of Illinois.The past several years have provided a tremendous growth in product diversity and trading volume at the Chicago exchanges.
In particular, the CBOT, trading volume increased by 32% last year and so far this year we are up by close to 40%. Trading activity has been booming at the other exchanges as well and it clearly highlights how relevant and important Chicago is as the cornerstone to the derivatives markets. This point has not obviously been lost on the organizers of this conference who chose Chicago as a new addition to their annual list of shows based on the increased interest in derivatives trading among active traders and investors.
The CBOT has long been associated with innovation in the futures markets. Permit me to briefly outline some clear-cut examples of the level of innovation at the Chicago Board of Trade.
- The CBOT was the original founder and developer of the Chicago Board Options Exchange in 1973.
- The CBOT was the first exchange to offer interest rate futures contracts when it listed GNMA futures in 1975.
- We established an evening open auction trading session in the 1980?s to meet the demand from Asian Markets.
- In the 1990?s we were the first exchange to offer each customer a choice-of-access by listing our financial products side-by-side in the trading pit and on the screen.
- In 2002, we joined with the Chicago Mercantile Exchange® and the Chicago Board Options Exchange to establish OneChicago for the express purpose of trading single stock futures and narrow based indices.
- More recently, continuing our tradition of innovation designed to enhance customer service we made a forward-looking decision to upgrade our existing electronic trading capabilities and we selected LIFFE CONNECT® for our new e-cbot® electronic trading platform. The enhanced functionality and robustness of LIFFE CONNECT® will provide significant benefits to all our market participants.
- And finally, this year we decided to work cooperatively with the Chicago Mercantile Exchange to create the CME/CBOT Common Clearing Link, the latest and most dramatic example of our desire and ability to come up with innovative solutions that best serve the needs of our customers. I want to share with you some of the Exchange's tough decisions we recently made on critical issues, including electronic trading, a new electronic trading platform, and our new clearing provider. It is through the implementation of these decisions that we firmly believe we are setting the industry's agenda and the result of which will ultimately enhance your individual trading opportunities.
Throughout its entire history, the Chicago Board of Trade has established and upheld the standard for insuring the highest principles under the Commodity Exchange Act --The reduction of systematic risk, and the protection of customers and efficient operation of markets.
Our self-regulatory practices and associated clearing guarantee have secured a level of customer confidence that is unparalleled in this industry.
In 2002, the Chicago Board of Trade experienced its best year ever in terms of volume, and the first six months of this year have shown no signs of a letup. As I mentioned earlier, for the first six months, trade volume is up close to 40% percent from a year ago. Our hybrid business strategy--offering the best open auction and electronic trading platforms--is obviously working and growing, as evidenced not only by our increased trading volume, but also by a stronger CBOT balance sheet and higher member seat prices.
Just last week, on July 15, the exchange had its second highest trading day record of 3,089,632 contracts, of which 1,764,569 contracts traded electronically and 1,325,063 contracts trade via open auction.
During the rest of 2003, I expect the volume to grow as the exchange prepares to launch its new e-cbot electronic trading platform, powered by LIFFE CONNECT®?. This new electronic platform will offer our online traders full spread trading capability, options strategy functionality, flexible trading algorithms, real time quotes and trade data, and dynamic price limits. All of those leading edge technology advancements will ensure that our customers receive the maximum value from our most important product--liquidity.
This liquidity allows every market participant to assume or eliminate market exposure quickly and at a fair cost.
Simply put, reliable, scalable and secure, the new e-cbot electronic trading platform will allow the marketplace to operate with greater ease and efficiency and ensure the continued growth of the CBOT. We are very excited about the launch and will begin the implementation of the new electronic system with selected products on November 24. The transition of all products to the new electronic platform will be completed by January 2, 2004. To the end user, you our customer, this transition will be completely seamless and without interruption.
To complement our new electronic trading technology, the CME/CBOT Common Clearing Link will provide significant operational efficiencies for all the market participants at both exchanges. This new linkage will be responsible for clearing approximately 85% of all futures traded in the United States. This innovative linkage will provide a single clearing interface, a single point of collateral management, a single risk management platform, and a single guarantee fund.
More specifically, once the Common Clearing Link is implemented, the application of position offsets for related products across the two exchanges would be significant. For example, the margin savings for a CBOT mini-sized DowSM futures vs. CME® emini S&P 500 spread trade will be approximately 80%.
But improving the functionality of the Chicago Board of Trade's electronic trading platform and making its clearing process more cost-efficient would be less than useful if the exchange did not continue to offer its customers the products they want.
Integrity is the backbone of your exchange and has been the watchword of the Chicago Board of Trade for 155 years. And today, our combination of open auction and electronic match platforms provides transparent communication and level playing fields at unprecedented levels of speed and efficiency.
To maintain our high level of market integrity, we have made the necessary commitment and financial investments to improve our overall business model, especially our decision to transition to LIFFE CONNECT® for our e-cbot electronic platform, and to the further development of electronic order routing systems and handheld technology in service of our open auction market.
I will expand a bit on our products, but first I want to highlight the strength and importance of technology and screen-based trading at the Chicago Board of Trade. Electronic trading at the CBOT continues to increase every day approximately 80% of our interest rate and equity index futures volume is conducted electronically.
In open outcry trading, over 60% of all futures contract orders are nowelectronically routed directly to and from floor brokers.
In addition to the Exchange's benchmark agricultural, stock index, and financial products, the CBOT last year launched its all-electronic mini-sized Dow contract, which continues to attract a growing breed of active, online traders. mini-sized Dow futures now average approximately 50,000 contracts per day and continue to set new volume and open interest records on an ongoing basis.
This sustained growth is a clear indication of the contract's growing liquidity and overall strength. Through our trading platform, traders now have around the clock, direct trading access to the most widely known and followed stock index measure in the world ? the Dow Jones Industrial AverageSM.
Next year, after we transition to the LIFFE CONNECT® platform, we have plans to continue to offer more such screen-based products and provide customers additional trading opportunities and direct access to a number of new markets. These contracts will include new interest rate vehicles as well as an expansion of our Dow JonesSM Index Product Line.
The CBOT is proud to offer the most diverse base of electronically traded futures contracts, spanning equity, interest rate, metals, and commodity markets. In addition to our core trading products, our Market Data Services department offers several cutting edge, data products and technical trading tools. Probably the most popular of these tools is the CBOT Market Profile.
Created in conjunction with exchange member Peter Steidlmayer in 1980, Market Profile is still one of the most widely used technical analysis tools in the futures industry today.
This graphic representation of the trading auction process continues to offer traders a unique view of the market that other more traditional displays fail to capture.
The CBOT?s Liquidity Data Bank is another of our data products that offers value to traders of our markets. LDB provides unparalleled transparency to the marketplace by displaying trading groups? net buy/sell volumes at their price.
And finally there is CBOT Advantage, the CBOT's real-time web delivered quotes and charting product, launched mid-May of this year.
The CBOT?s main communication tool for product information and educational trading resources is www.cbot.com. If you stop by the CBOT's booth at the show you can see a live demonstration of CBOT Advantage and receive detailed information regarding other CBOT products and various types of trading resources and tools we have available to benefit online customers and traders.
To briefly summarize, the Chicago Board of Trade's ability to capitalize on innovation and product success benefits market users who enjoy the most efficient markets at a low cost.
At the Chicago Board of Trade, volume is poised for explosive growth and we will stay on course and focus on the key themes of direct access, innovative products, liquidity and distribution. For us, focus equals success. We know what we can successfully provide to our market users. We will continue to be guided by what we do best, and that the value we offer has been and continues to be recognized by our users. The CBOT will continue to make decisions for the benefit of the marketplace as a whole, and in the name of integrity, and innovation.
Again, please take the opportunity to stop by our booth at the Show. CBOT staff and I will be available when the Exhibit Hall opens to talk to you personally about our exchange and our products.
Thank you for allowing me to be here with you today.
