American Stock Exchange
86 Trinity Place, New York, NY 10006
Phone: 212-306-1000
Web Site: www.amex.com

The Amex, the second-largest options exchange in the world, announced last year that it has taken its first step toward full electronic trading by offering electronic order matching for its customers, matching customer limit orders with incoming market and limit orders. Since mid-1999, the exchange has been developing its next-generation electronic trading system, though it hadn't announced a launch date at press time.

Chicago Board Options Exchange
400 S. LaSalle Street, Chicago, IL 60605
Contact: Lisa Morano, director of technology marketing
Phone: 312-786-7927
Fax: 312-786-7319
Web Site: www.cboe.com

The CBOE, the world's biggest options exchange, is planning to launch its new automated trading system, CBOE Direct, in the first quarter of this year.

Initially, the platform will offer only equity index products, and will be live from 6:00 A.M. until 8:15 A.M., when its open-outcry based market opens. More than $50 million has been spent developing the electronic auction system, which plans to expand its products and trading hours gradually.

In terms of the application program interface, the CBOE Market Interface provides access to all exchange trading services and is intended for firms whose primary business is market-making. The CMi is a distributed object interface based upon the CORBA standard from the Object Management Group. All member firms currently connected to CBOE's automated Order Routing System will be able to route orders to CBOEdirect and the extended hours session via their existing links with the following minor change.

Chicago Board of Trade
Contact: Dennis Collins, vice president of marketing
Phone: 312-435-3736
E-mail: dcol50@cbot.com
Web Site: www.cbot.com

The CBOT has offered Project A, its after-hours electronic trading system, for years. But last year, it dove head-first into electronic trading when it co-launched the a/c/e platform—short for the Alliance of the CBOT and Eurex. Now, most CBOT products, with the exception of metals, can be traded electronically during the trading day. The system is accessible through Eurex's trading network, which allows clients to link up via dedicated access pointed worldwide. As with the Eurex system, all orders are anonymous.

At the moment, about 3,000 active accounts on a/c/e are held by CBOT member firms. But given the CBOT's imminent restructuring as a for-profit company, accessibility to the electronic system may open up to a far larger market in the future.

Chicago Mercantile Exchange
30 South Wacker Drive Chicago, IL 60606
Contact: CME Technology Marketing
Phone: 312-930-2397
E-mail: globex2@ cme.com
Web Site: www. cme.com

The Merc launched its next-generation 24-hour electronic trading system, Globex2, in late 1998. With its transition to a de-mutualized, for-profit exchange last November, it's likely to explore more electronic trading strategies in the near future.

It certainly has a good track record. Globex doubled its trading volume every year from 1992 through 1998, and Globex2 has shown strong volume gains as well. Moreover, the exchange's electronic-only products have flourished.

The e-mini S&P 500 options and futures contracts, and the e-mini Nasdaq 100 contracts, have been immensely successful among retail investors previously priced out of stock index futures. At this writing, e-mini S&P futures for March settlement were trading at more than 80,000 contracts a day.

Eurex
Neue Borsenstrasse1, D-60487, Frankfurt/Main, Germany
Contact: Ralf Lang
Phone: 312-782-2223
Fax:312-782-2225
Web Site: www.eurexchange.com

Owned by the Deutsche Borse, the fully electronic Eurex is the biggest futures exchange in the world. Its 440 members worldwide—60 in the United States—traded roughly 450 million contracts last year in more than 100 different products. Products include futures and options on the Bund, Euribor, Euro-Schatz, Euro-Bobl, Euro-Buxl, and options on German Swiss, Nordic, Dutch, Italian and French stocks. Equity index option and future products include Dow Jones Stoxx 50 and Dax. Via the a/c/e partnership with the Chicago Board of Trade, the exchange carries most of that exchange's products as well, over its dedicated lines.

International Securities Exchange
60 Broad Street, New York, NY 10004
Contact: Richard Pombonyo, vice president, marketing
Phone: 212-943-2400
Fax:212-425-4926
E-mail: RPombonyo@iseoptions.com
Web Site: www.iseoptions.co

The International Securities Exchange is the nation's first entirely electronic equity options market. It lists contracts on 200 U.S. equity options now, with an eventual target of 600. The automated and totally anonymous auction trading system is accessible via a proprietary network open to three types of members: primary market makers, competitive market makers and electronic access members.

The firm's chief rivals are the Chicago Board Options Exchange and the American Stock Exchange, both of which have some sort of automated system in the pipeline.

Despite the ISE's first-to-market status, volume levels have been thin.

Liffe Connect
Cannon Bridge House, 1 Cousin Lane, London EC4R 3XX, United Kingdom
Contact: Fraser Cowie, sales director
Phone: 44-20-7379-2676
E-mail: Fraser.Cowie@liffe.com
Web Site: www.liffe.com

Liffe has remade itself from an open-outcry-based floor operation to a fully operational electronic exchange. A number of ISPs have been appointed to design and implement systems technology, and Liffe Connect screens have been wired up across the globe. The new screen-based system has squeezed bid-ask spreads to half a tick, and sent volume through the roof, with members making most of their profit margins from clearing activities.

Liffe Connect's electronic-matching-engine trading system is accessible through a global network providing a number of local points of presence.

Several value-added networks, such as Bloomberg and GLTrade, can also access the system, and member firms can distribute through their own networks' access points through to their own end-users Membership levels have skyrocketed, from 110 in the waning days of open outcry to 356 today, with 15 to 20 new names added each month.

Matif
39 rue Cambon, 75001 Paris, France
Phone: 33-1-49-27-10-00
Fax:33-1-49-27-14-33
Web Site: www.matif.fr

The French Matif is now part of Euronext, a consortium of European equity and futures exchanges including those in Amsterdam, Brussels and Paris. In 1999, the Matif shifted to the fully electronic platform NSC platform, nearly prompting riots in the streets of Paris. In retrospect, however, the move paid off for the exchange, whose trading volumes have skyrocketed from 68.6 million contracts in 1997 to 236 million in 2000.

The NSC system offers an open architecture and a universal distribution network, as well as the Chicago Mercantile Exchange's Clearing 21 system. The exchange trades 10-year Notional bond futures and options, 5-year MATIF bond futures and options, 3-month Pibor and Euribor futures and options, and futures and options on the CAC 40 index, the Dow Jones Stoxx 50 and Euro Stoxx indices. It also lists a variety of commodity futures.

The Pacific Exchange
301 Pine Street, San Francisco, CA 94104
Contact: Dale Carlson, vice president of corporate affairs
Phone: 415-393-4198
E-mail: dcarlson@pacificex.com
Web Site: www.pacificex.com

A stone's throw from Silicon Valley, it's natural to expect that the PCX should be at the forefront of e-trading technology. But the exchange's electronic-trading system is still under development and, after launching, will merely run alongside its open-outcry trading floor. For small orders, an automated routing and execution system is already in use, but larger option orders are still filled in the pits.

Bringing e-Trading to Futures With True STP

At first it was just Eurex that was electronic. Then Matif, then LiffeConnect, and finally, in a flurry, the U.S. exchanges pulled the electronic rip cord. Since late last year, both the Chicago Board of Trade and the Chicago Mercantile Exchanges have been actively rolling out electronic trading for multiple products, with the CBOT's electronic bond futures contract already trading approximately 30 percent of the daily bond futures volume and generally gaining market share week by week. It may not be long before Dan Rather's lead story is the closing of the Board of Trade's bond pit—and its conversion into, perhaps, the South Loop Food Court. But the question is, How do you access these new electronic markets? Do you go to CBOT.com and just start trading? Although CBOT.com does have a fresh new look and feel—with lots of user-friendly ways to view the price action, including the ability to construct historical charts—the answer is no. If you want to trade futures electronically, it is still necessary to find a futures commission merchant and open a traditional brokerage account. But then there's one extra step: arranging with that FCM to have access to an ISV provider. An ISV what? In a world awash with new acronyms, ISV stands for Internet software vendor. The companies in this space include names like Patsystems and Trading Technologies, which work with individual FCMs and exchanges to provide a unified electronic futures dealing portal directly to FCM clients. Often these systems get white-labeled with the FCM name itself—such as RefcoDirect—even if they use Patsystems's J-Trader as their core technological base. At other times, the portal may be an in-house extension of the FCM itself, such as Timber Hill's InteractiveBrokers.com or CSFB's PrimeTrade. Whatever the case, some care must be taken in choosing a broker that provides this direct electronic access. It's particularly important to make sure that the look and the feel of the dealing platform is good. You need to know how many exchanges are supported, which new exchanges are coming on-line, whether electronic options trading is possible, and whether equity trading on the same platform is also supported. Moreover, you need to ask if it's possible to enter an order electronically for a market in which physical pit trading still exists. This type of order routing will invariably be slower than the pure electronic kind, but it's a nice feature to have. The look and feel of the on-line position reporting and margin maintenance is also something to consider, as is the ability to see the full depth of the market. All of this may sound simplistically obvious to an equity trader long used to clicking on an Archipelago or Instinet terminal, but this trading functionality is now coming to the majority of futures products for the first time. Companies like Patsystems are linking the exchanges' actual bid-offered prices to your desktop via the Internet, and then sending your trades directly to your broker's office in a virtuous loop. In the RefcoDirect case, for example, the firm has rolled out approximately 300 of its RefcoDirect units so far, absorbing all of the costs of deploying this system to clients, but obviously covering these costs in its commission charges. The Refco system, housed on Refco servers but running Patsystems technology, then accesses its way to all the permissioned exchanges for a given account and provides proper order routing and the interface of all trades directly into Refco's back office. Pre-trade risk limits can be imposed by a broker per user, and a broker can monitor the activity and margin account balances of clients in real time. Any order that would breach a predefined trading rule is automatically rejected—whether that's because of a maximum trade size limit, position size limit or daily loss limit. There is also a complete audit trail of activity—so in short, straight-through processing for futures has finally arrived. Patsystems has yet to integrate its option risk management platform, called WinTrade, into its J-Trader futures trading platform, and it does not allow the routing of orders to non-electronic pits. But a whole host of electronic exchanges are supported. Patsystems currently provides direct access to Eurex, Liffe, Globex2, Matif/Monep, the CBOT/Eurex Alliance and the Spanish MEFF RF systems, among others. Upcoming new exchange gateways will include SETS, Xetra, Euronext, NYSE, Nasdaq, SFE, SGX and IDEM markets. In addition to its close alliance with Refco, Patsystems counts broker GNI as another of its most important FCM clients. Users of any ISV must be aware, of course, that rules for electronic trading vary by exchange. It is impossible to leave a stop-loss order on LiffeConnect, for example, although one can do so on most other exchanges. Liffe Connect allows the trading of spread interests, whereas Eurex does not. The CBOT shows the depth of a market, but in the current version of Patsystems, the Merc does not. And so on. Yet clearly the days of barking "Where's the market? What's the size? I need my fill!” are quickly waning. No longer can your broker say, "the locals pulled their offer.” An offer or bid is either there or it is not. Companies like Patsystems are linking the exchanges' actual bid-offered prices to your desktop via the Internet, and then sending your trades directly to your broker's office in a virtuous loop. —B.L.