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The exchange will reduce GLOBEX® electronic trading customer fees that are associated with calendar spread "rolls" in its E-mini™ stock index contracts for customer accounts from $0.50 to $0.10 per side, effective Sept. 2. As a result, the overall customer rate for these roll trades, when executed as a spread, will be reduced from $1.14 to $0.74 per side. There has been a dramatic increase in the past 18 months in trading volume, as well as in the number of E-mini stock index contracts that have been rolled. A roll occurs when a position in an expiring contract is replaced by a similar position in the new front-month contract.
CME also announced that it will reduce GLOBEX electronic trading system fees for its flagship Eurodollar contracts and other interest rate products by 60 percent for CME members, clearing members and their affiliates who generate the vast majority of trading volume in those contracts and make Eurodollar futures one of the most liquid contracts in the world. These changes also are effective Sept. 2.
Additionally, CME will establish a market maker program for Eurodollar futures traded on GLOBEX during non-floor trading hours. The electronic Eurodollar market maker program will be open to CME members, lessees and those who trade proprietary accounts at member firms. In order to participate in the market maker program, individuals or firms will be required to post sizeable bids and offers in designated Eurodollar futures contracts during non-floor trading hours, or between 2:00 p.m. and 7:20 a.m. Central Time Monday through Thursday and Sundays from 5:30 p.m.
"These initiatives are part of our ongoing commitment to respond to customer needs while ensuring the efficiency and effectiveness of our markets," said CME Chairman Terry Duffy. "Eurodollar futures are already the most liquid short-term interest rate contract you can find for hedging risk. This year, our Eurodollar contract has set numerous volume and open interest records. A number of our key market participants have told us that incentives such as our market maker program would significantly enhance liquidity during non-floor trading hours."
CME President and CEO Jim McNulty said, "In our experience, increasing the attractiveness of our electronically traded products has enhanced the appeal in open outcry as well. In the case of our E-mini equity products and foreign exchange, we have significantly grown the electronic trading business while maintaining or growing the trade in open outcry."
Participants qualifying as market makers will have their GLOBEX system fees waived for Eurodollar futures during non-floor trading hours. They will also be eligible for a waiver of their GLOBEX connectivity fees up to a maximum of $2,500 per month for the duration of the program. Market makers meeting all eligibility criteria for the full year of the program will be eligible to have their non-floor trading hour GLOBEX system fees waived for an additional year following the program's termination.
Initially, market maker status will be available to those whose past activity demonstrates the capacity to facilitate certain trading levels. After the first six months, volume traded by the market makers will be reviewed to determine if they may retain market maker status. Volume for market makers in the two most active contracts must be equal to at least 4 percent of the monthly GLOBEX volume during non-floor electronic trading hours. For market makers in other Eurodollar contracts, their volume must be equal to at least 2 percent of total monthly non-floor electronic trading Eurodollar futures volume. Thereafter, the status will be reviewed quarterly, and these thresholds may be subject to change.
Additionally, CME announced that it will reduce GLOBEX fees for members, member firms and lessees - or those conducting the vast majority of Eurodollar trades - from $0.25 per side to $0.10 per side. The fee cut applies to CME member firms, which include major domestic and international banks and other financial institutions that face interest rate risks from their lending and borrowing activities, their activities as dealers in OTC interest rate swaps and structured derivatives products and their proprietary trading activities. There will be no change to clearing fees. So the total cost of an electronic Eurodollar trade would be no more than $0.18 for CME members and member firms. The new pricing schedule is expected to be implemented before the end of the third quarter. Additional details on the program will be announced soon.
Since the launch of the Eurodollar futures contract in December 1981, CME has continuously refined the product to allow it to meet the needs of an ever greater customer base. Side-by-side trading of Eurodollar futures was inaugurated in July 1999, giving traders the choice between open outcry or GLOBEX trading during regular trading hours. CME also has introduced half- and quarter-point tick sizes (minimum price movements) to enhance contract efficiency.
CME's Eagle (Electronic Arbitrage GLOBEX Liquidity Enhancer) Project, launched in January 2003, permits electronic calendar spread trading for Eurodollar futures, creating implied prices for outright futures and spreads. Implied pricing functionality in Eurodollar futures via Eagle enables market professionals to see new bids and offers - in individual quarterly contracts and calendar spreads - derived from outright bids and offers in monthly contracts and pre-de?ned calendar spreads. The trading engine identifies new bids and offers in outright and spread markets derived from posted prices, creating even greater market transparency, liquidity and trading opportunity for Eurodollar futures traders.
"Those who will qualify for the fee reduction play a significant role in making the Eurodollar one of the most attractive and cost-effective hedging mechanisms in the world," said Duffy. "We have been successful in introducing creative pricing structures over the years that have further contributed to that liquidity, including tiered pricing for high-volume market participants and back-month incentive programs."
The Eurodollar was the world's most actively traded futures contract in 2002 and serves as a major tool for the management of risk associated with changes in short-term interest rates. On July 31, total volume in Eurodollar futures exceeded two million contracts, the first time any individual CME contract traded more than two million contracts in a single day.
Chicago Mercantile Exchange Inc. (www.cme.com) is the largest futures exchange in the United States. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX electronic trading platform. CME offers futures and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. The exchange moved about $1.5 billion per day in settlement payments in the first half of 2003 and managed $29.1 billion in collateral deposits at June 30, 2003. CME is a wholly owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (NYSE: CME), which is part of the Russell 1000® Index.
GLOBEX is a registered trademark of Chicago Mercantile Exchange Inc. Further information about CME and its products is available on the CME Web site at www.cme.com.
