FUTURES TRADING
The futures market has been creeping from the trading floor to the Net for decades. Now it's getting a push from an unlikely source: Web-based B2B hubs. In partnership with the Chicago Mercantile Exchange (CME), CheMatch.com, a chemical industry exchange, by midyear will become the first hub to offer futures contracts to individual investors online.
Although B2B deals tend to be long-term, fixed-price agreements, online industrial exchanges have fostered the kind of quick turnaround and variable pricing found in stocks, bonds, options, and futures. "B2B exchanges have been turning static markets into dynamic markets," observes Satish Nandapurkar, CME's managing director of ebusiness. "We decided to partner rather than compete."
Competition is definitely an issue. Compared with traditional exchanges, online hubs offer faster execution, lower trading costs, and confidentiality - qualities valued by individual speculators and commercial hedgers, but not necessarily by exchange member/owners, whose edge comes from their ability to read the subtleties of the floor. And with no membership to impede progress, observes Kevin Wenta, CheMatch's VP of futures and options, "we can bring products to market more quickly and cheaply."
Other hubs deal in futures-like contracts known as forwards, but they can only broker trades among commercial participants. To accommodate the general public, they must be licensed by the Commodity Futures Trading Commission - an arduous, time-consuming process. CheMatch will sidestep the issue by routing its futures business through the CME's Globex2 transaction platform, which is already authorized for retail trades. In return, the CME will gain access to a slew of new products, not to mention CheMatch's audience.
If those customers have shied away from the pit in the past, it might be because 75 percent of individuals who trade futures the traditional way lose money, according to unofficial brokerage estimates. CheMatch's innovation could change that while pushing the futures market toward an independent, automated system - one that would put individual investors on a par with the rest of the futures community once and for all.
- Chuck Epstein (cepstein@prodigy.net)
CheMatch: www.chematch.com.
Chicago MercantileExchange: www.cme.com.
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