By Jeremy Grant in Chicago
The Chicago Board of Trade plans to launch electronically traded gold and silver futures contracts in a move that could challenge the New York Mercantile Exchange’s global leadership of precious metals trading, derivative exchange sources said.
The plans come as the world’s largest derivatives exchanges battle for dominance of trading in futures and options amid unprecedented demand for such products from corporate risk managers, mutual funds and hedge funds.
They signal that this battle is starting to involve rival exchanges in the US, not just efforts by European exchanges to break into the US. In February, Frankfurt-based Eurex started a US futures exchange that competes with the CBOT in financial futures.
The CBOT, the second largest US futures exchange by volume, already offers mini-sized gold and silver futures contracts targeted at retail investors on an electronic trading system.
It plans to add standard-sized gold and silver futures contracts on the same system in the autumn and are likely to be cleared through a “common clearing link” between the CBOT and Chicago Mercantile Exchange.
“These contracts will be fully electronic and for the first time in the metals market you have the ability to trade them electronically and have all the advantages of straight-through processing,” said one exchange source. Straight-through processing is the completion of a derivatives transaction from trading through to clearing and settlement.
The CBOT’s plan would be a challenge to Nymex because the New York exchange is the world’s largest gold and silver futures exchange. Yet about 95 per cent of trading in Nymex gold and silver is done “open outcry” in trading pits.
The CBOT also plans to offer other metals such as copper and platinum early next year, the source said. Such a move could pose a threat to the London Metals Exchange, which dominates global trading of such products.
Robert Ray, the CBOT’s senior vice-president of business development, declined to comment on any specific plans for gold, silver or copper. But he said: “We are exploring growth opportunities in this sector.”
As a first step, the CBOT yesterday said it would switch from using the Nymex’s gold and silver futures contract prices as a basis for settlement of its mini gold and silver contracts.
Nymex said yesterday: “Our settlement procedures were honed after years of effort and we don’t believe they should be available to competitors for use on competing products.”
Source: Financial Times