emini tick change???
- Thread starter alanack
- Start date
Guys,
I know for a fact that the CME, a publicly traded company does not want the tick size to change. The differences in the tick sizes creates a better arb opportunity for traders scalping between the two. (This is what made the product take off) The Arb traders (Electronic Traders) are the reason why the Minis have so much liquidity and they are all MEMBERS of the Exchange. In addition, they now outnumber PIT Traders with Memberships. It is obvious that the Pit is giving up the edge, but where is the majority of volume growth coming from and Membership Power? Is it in the S&P pit or is it in the Electronic Arbers with memberships? I know the answer, but you have your opinions and that's great. I wouldn't bet on it if you gave me Odds!
Riskless
I know for a fact that the CME, a publicly traded company does not want the tick size to change. The differences in the tick sizes creates a better arb opportunity for traders scalping between the two. (This is what made the product take off) The Arb traders (Electronic Traders) are the reason why the Minis have so much liquidity and they are all MEMBERS of the Exchange. In addition, they now outnumber PIT Traders with Memberships. It is obvious that the Pit is giving up the edge, but where is the majority of volume growth coming from and Membership Power? Is it in the S&P pit or is it in the Electronic Arbers with memberships? I know the answer, but you have your opinions and that's great. I wouldn't bet on it if you gave me Odds!
Riskless
If the tick were reduced to .10, traders would save a potential $7.50 on each emini. This would increase the participation in the emini from medium and large hedge funds - making the emini even more liquid.
Since most of the arbitrage seems to be initiated in the emini and exited in the pit (because of the time lag of the pit), it would seem that the pit is taking liquidity away from the emini instead of visa versa. So reducing the tick size should increase emini liquidity, not reduce it IMHO.
The exchange (or should I say the corporation) makes 5 times as much in fees from dollar equivalent Emini as from the pit contract.
From a corporate point of view it would make sense to shift things from the pit to the emini.
The corporation has a fiduciary responsibility to maximize its profits - the profits of individual share holder's businesses is not its primary concern (whether they be pit traders or arbs). Otherwise they could be sued for favoring certain shareholders at the expense of the company and the other shareholders.
Tea - you've made a number of large assumptions in a vacuum.
Other than just your personal guess, on what are you basing your idea that dropping the tick size to a dime and theoretically saving a few bucks per emini on the spread would dramatically increase liquidity? Smaller ticks in equities hasn't increased liquidity and it's reduced market depth visibility.
Other than just your personal guess, on what are you basing your idea that dropping the tick size to a dime and theoretically saving a few bucks per emini on the spread would dramatically increase liquidity? Smaller ticks in equities hasn't increased liquidity and it's reduced market depth visibility.
Maybe they will participate but maybe they won't. Will they move from the big contract to the emini contract? If they do then they are merely shifting liquidity, not creating any new liquidity for the overall market. You're assuming that the arb liquidity exists in a vacuum. That's a pretty big assumption.
Again this is shifting volume, not necessarily creating any more total market liquidity. If the change doesn't create new volume for the CME, then why should it do it if it is going to upset its entrenched pit member stakeholders?
Not to nitpick but it isn't cut and dry 5 times more. There is a complex schedule of rates for the different fees for executing your order, for various grades of member, and globex or pit execution. Pit execution for "other products" actually has lower cost than emini globex execution, which in turn has lower cost than "other product" globex execution.
Companies can be sued for lots of things. Whether you can find a judge to award you any money is another matter.
Rather than change the tick size for the EMINI contract, I would rather the exchange cut their fees in half. This would increase arb and little guy profits without the chance of decreasing emini liquidity. Second on my wish list is simultaneous trading of the big S&P with the globex S&P during RTH. That would lead to fast culture change IMO, and according to the fees schedule would also increase the CME's income from globex executed large S&P contracts during RTH.
You are right, I erroneously used the word liquidity instead of volume in the above two posts.
It would shift VOLUME to the emini, which would provide an increase in natural liquidity (for the emini). This would offset the artificial liquidity created by a wide spread due to the .25 tick increment. You donât need to pay extra for artificial liquidity if you have enough natural liquidity.
Because they would make (roughly) 5 times as much in fees if the S&P volume shifted to the Emini.
Well you are talking about saving (roughly) $7.50 vs. $1.40 for each emini contract.
I would prefer the higher number.
The ideal scenario would be to close the pit and have both the full sized Globex S&P and Emini trade side by side during regular trading hours with a .10 tick increment or less. Then have an exchange computer arb them automatically (another revenue source).
This would reduce slippage/friction for all directional traders.
Large hedge funds will never rely on the emini, not enough liquidity for them to get in and out quickly. They need the full sized contract.
This "Corporation" is not out to make dramatic changes to trading. It is run by it's own network and too many former floor traders. The profit on the mini supports the mini. The profit on the full sized contract supports the full sized contract. 5 x higher profit for the corp, mean 5x less profit for traders who trade size. They aren't about to shift to the mini.
They will not be sued by any of their S/H. Yes, they have a responsibility to make the most money they can. That doesn't mean they are even about to get rid of the pit. That's a strategic decision. Get real.