CME, Nymex, Comex, Paris Bourse and Friends To Cooperate On Single Electronic Trading Platform And Clearing System

Calling the electronic after-hours trading system that the Paris Bourse has developed "an extraordinary system," the Chicago Mercantile Exchange's chairman Jack Sandner announced Feb. 20 that the CME, along with the New York Mercantile Exchange, the Commodity Exchange, and France's Matif and Monep, have signed a letter of intent to adopt the Bourse's Nouveau Systeme de Cotation electronic after-hours trading system in 1998.

In the case of the CME and the Matif, this would replace their use of the Globex electronic trading platform, which Reuters developed and supports. However, the CME and Matif plan to continue using Globex as the name to describe their after-hours trading.

For its part, Nymex will continue using the name Access, which is what it calls the electronic after-hours trading system it built with AT&T. The other three exchanges, however, have not yet determined what name they will use.

In conjunction with this initiative, the six exchanges also plan to adopt Clearing 21, the clearing and settlement system that the CME and Nymex have jointly developed. It was designed to be "cost efficient and much more user friendly [for members] when they input their data," Sandner says.

The agreement was prompted by a few factors. First, the Matif announced in late January that it would pull out of Globex when its contract runs out in April 1998 (TST, February 3).

Then, Reuters indicated in its 1996 earnings report that it would probably discontinue supporting Globex in 1998 because it "has never been particularly successful and its closure will not produce any material impact on the company's results" (TST, February 17).

A CME spokesperson indicated at that time that the exchange was considering joining Matif in adopting NSC, primarily because of its open architecture.

NSC's central host, which matches orders and runs the ticker plant, uses Tandem Computer Non-Stop servers. End users can connect to the NSC system via either X.25 or TCP/IP protocols. At the desktop, NSC can run on either Windows-based PCs or Unix workstations.

The NSC workstation allows access to multiple markets on the same screen. It is also equipped with Dynamic Data Exchange (DDE) links to spreadsheets to allow brokers to keep track of their positions on a real-time basis. A Bourse spokesperson says: "This open architecture philosophy gives traders access to a range of powerful dealing workstations already available--or enables them to develop their own trading technology integrated into their existing environment."

Somewhat surprisingly, given its lengthy development time scale, Sandner called the network and software that Reuters developed for Globex a "very, very good system [developed] in a short period of time, breaking whole new ground for electronic trading in futures. [However], over time we analyzed the needs of electronic trading constituents and realized that given the current state of affairs, the system has to be a more open architecture."

Charlie Barwis, Globex vice president, explains that the open architecture of the NSC system enables any front end to connect to it. "The idea here is that there are many front ends that will be available to access the NSC system. Globex, as it stands now, is a dedicated network that you can only access one way," he says.

The union of six futures and options exchanges around the world on an open architecture could certainly give the NSC more liquidity than Globex has enjoyed in its four-year life span.

Leo Melamed, CME's chairman emeritus, called the venture "globalization in its highest form, using cutting-edge technology." He added that Clearing 21 and the NSC system had the potential for becoming international standards for the futures and options industry.

Sandner predicted that the union of these six exchanges on a common trading and clearing platform would be just the beginning of similar agreements amongst other exchanges. As trading becomes increasingly global, he said, exchanges have a "responsibility to standardize electronic trading and clearing platforms" so that instead of a trader needing "nine boxes on their desk to access different exchanges," there will only be one.

"I think ultimately what you will see, perhaps in a decade, is one huge continent instead of seven continents, in terms of financial services in the futures and derivatives industries."