Early fall launch

The products will begin trading Sept. 23, and each contract will have a notional value of $250,000 twice that of a CME contract. All fees will be waived for the remainder of 2005, although the standard fee will be 50 cents per contract side.

“If you add in clearing fees, our contracts will cost between $5 and $8 per million, which makes us competitive with OTC and much cheaper than existing exchange fees,” Nandapurkar says.

Eurex will set up an incentive program through the end of 2007 that will allow market makers and proprietary trading firms that do a minimum volume and/or provide continuous twosided markets to get free or reduced trading costs and participate in a revenue sharing plan.

“We are changing the model,” Nandapurkar says. “Many electronic platforms are charging their liquidity providers for the privilege of providing liquidity. We’re enfranchising the liquidity providers by waiving their fees and letting them share in our success.”

Besides the 23-hour trading day, the decision to list the products on Eurex U.S. also gives the floundering exchange another chance at making an impact in the derivatives world. In announcing its decision to trade currency futures, Eurex U.S. also announced it would no longer actively promote its U.S. treasury products (see “Eurex U.S. shifts from Treasuries to currencies,” Active Trader, September 2005).

“We are refocusing our resources toward index and FX products,” Nandapurkar says. “The window of opportunity with treasuries has passed. The existing treasury products will remain listed but no new sales, marketing or incentive programs will be initiated.

Nandapurkar blames anti-competitive measures by the CME and Chicago Board of Trade for Eurex U.S.’s failure to compete with the CBOT in the treasury market.

“The delays in the Global Clearing Link, which we feel were impacted by efforts by our competitors, and also predatory pricing by the CBOT put into place when they cut their fees to zero right when we launched, really pushed us past that window [of opportunity] and are the key aspects of our anti-trust litigation against the CBOT and CME.”

Ferscha says he hopes Phase II of the Global Clearing Link, which will completely link Eurex U.S. and Eurex customers, both from a clearing and trading standpoint, will be approved quickly.

And, while Eurex’s direct competitor on the exchange side will be the CME, there are numerous players in the forex arena.

“We are competing with all venues that are active in forex,” Ferscha says. “Many are interbank, many are whitelabels (i.e., introducing brokers), and many are cleared by prime brokerages and so on. So we are competing with a multitude of players, and I think that’s a good thing. We are delivering the product at a low cost, and we can do that because it is only a marginal cost to us.”

The CME has already made efforts to tap into the spot forex market by hooking up with Reuters.

Nandapurkar says Eurex is exploring similar arrangements.

“Forex is a fragmented space, and we are always interested in knowing what’s going on,” he says. “As we are a new player, it is our desire to talk to all different marketplaces and understand if there is some way we can work together.”

Nandapurkar also says Eurex has plans to list options on the currency futures, but no timetable for that has been announced.

The CME is not concerned with Eurex’s recent decision to drop Treasuries and pick up Forex.

“We are clearly well ahead of them,” says Rick Sears, director of foreign exchange at the CME. “We already compete with a whole host of platforms, and we’ve had FX futures for 34 years. We have a lot of competition. We’ve lowered prices for hedge funds and CTAs — we are well aware of our competition.”