Exchange Market Dynamics – Factors for Success Bob Hutchings Senior Product Manager Chicago Board of Trade First Seoul International Derivatives Securities Conference August 28, 2003
Agenda Elements of Successful Exchanges Trading Overview Products Exchange Initiatives Question and Answer
Elements of Successful Exchanges
“The Soviet Union Union would have collapsed years earlier if it did not have the West's prices on which to make economic decisions.” -Mikhail Gorbachev
“The power of the silicon chip will double every 18 months.” -Moore's Law
Does IT amplify brain power or does “IT” stand for “Insignificant Toys”
“There is one important caveat to the notion that we we live in a new economy, and that is human psychology... which appears appears essentially immutable.” -Alan Greenspan
“The medium is the message” -Marshall McCluen
Low-cost enforcement of forward contracts Brokers dealing as principals “Ringing-out” Settlement by the payment of monetary differences Deposits of margin money Standardized contracts Impartial grading Speedy arbitration
“Information Rules”: "Technology changes, economic laws do not."
Don’t Burn the Textbooks
Trading Overview Trading volumes up, what’s the problem?
“The willingness to take risk is essential to the growth of a free market economy. If all savers and their financial intermediaries invest in only risk-free assets, the potential for business growth would never be realized.” -Alan Greenspan
“...futures and option markets – are zero sum games...” -Dr. Thomas Schneeweis
So, who’s at fault?
Pit Trading and Electronic Venues for Market Making
Risk is ferocious, inescapable, but manageable
Products
“Ironically, a well-functioning futures contract will represent an imperfect transaction for both parties, being general enough to apply a broad range of buyers and sellers." -(Petzel, 1989, p.6)
"Markets tend to happen and evolve over time in very standard ways." -Dr. Richard Sandor
Access Products
New Products?
Exchange Initiatives
CBOT ® Innovations
Was original founder and developer of the Chicago Board of Options Exchange in 1973
First exchange to offer interest rate futures contracts-listed GNMA futures in 1975
Established evening open auction trading session in 1980's to meet the demand from Asian Markets
In 1990's, first to offer financial products side-by-side in the trading pit and screen
In conjunction with the CME and CBOE established OneChicago
LIFFE CONNECT ®
Common Clearing
New Tools
CBOT Advantage
Market Profile
Liquidity Data Bank
OFI (Order Flow Imbalance)
Question & Answer
Bob Hutchings Senior Product Manager Chicago Board of Trade (312)