Eurex

M

Maverick74

Here are the first publicly available information about Eurex's U.S. exchange plans that I have seen:

New exchange launch planned for U.S.
http://www.eurexchange.com/new

Equity Options Exchange

Background
The Equity Options Exchange will be a fully automated securities market under the regulatory jurisdiction of the Securities and Exchange Commission. It will list option contracts on the most active U.S. stocks and ETFs. The Exchange will offer all options market participants an unparalleled opportunity for trading U.S. equity options.

Product Offering
The Exchange will initially list options on the most active US stocks and ETFs, which will be fungible with other multiple listed options at the Options Clearing Corporation. Options on indices are currently under consideration by the Exchange.

An Innovative Market Model - New Opportunities for Options Traders
The Equity Options Exchange model is based on the principles of transparency, fairness and accessibility. The Exchange provides easy and cost efficient access to options on the most active U.S. stocks and ETFs.

Most Active U.S. Options - Fully Automated

Transparency
-Open Order Book
-Order book depth of up to 10 bid/offers
-Firm Quotes

Fairness
-Competing Market Makers
-No execution privileges
-Price/time priority
-Complete anonymity

Accessibility
-Easy membership process
-No annual fees or dues
-Direct Access for sponsored traders
-Order routing customers welcomed

Advantages for Market Makers
The Exchange will offer fee privileges to Market Makers while at the same time encouraging voluntary and competitive market making.

Market Makers can be:
Continuous Quote Market Makers (CQMM) who provide continuous quotes for designated series, or
Price Improving Market Makers (PIMM) who are given incentives to improve prices in the market.
A Market Maker could be either a CQMM or PIMM simultaneously for different options.

Market Makers will be able to use automated quote machines and can provide their quotes over high bandwidth connections to the Exchange.

Attractive for Order Flow Providers
The Equity Options Exchange model will allow order flow providers to get the best prices for their customer orders by ensuring:
-What you see is what you get.

-Step-up opportunities to the whole market that maximize the chances that customer orders are filled promptly without being sent out.

-The Exchange will be part of the intermarket options linkage.

Order flow providers will also be able to connect customers (that have entered into a sponsorship agreement with them) through automated order routing systems. This ensures a complete electronic process from order entry to confirmation.

Technology
The Exchange's trading system will be based on the proven technology of Eurex, the world's largest derivatives exchange. Members will enjoy the following benefits:

-High Bandwidth connections
-Internet connection alternatives
-Automatic failover mechanisms
-Highly reliable and advanced security systems
-Open programmable interface

Access
Entities registered as broker-dealers may become members of the Exchange and have direct access to the trading system.

A trader who has been designated by a member as one of the following will have direct access to the system:

Authorized Trader

Market Maker Authorized Trader

A customer can take part in the market by either becoming a sponsored participant or by trading through an authorized trader of an existing member.
 
I seems better than the BOX as no price improvement so that you can be on the bid or offer and not be stepped infront of by the market maker.
 
Eurex has not yet decided whether it will set up its own US futures and options exchange or buy an existing exchange, the German-Swiss exchange said on Wednesday.


The exchange was responding to reports, based on information posted on its website on Tuesday but later withdrawn, that it was likely to set up its own US derivatives exchange.

Speculation that Eurex may have decided to set up its own exchange has been partially fuelled by the disclosure in the Financial Times last week that the planned sale of the American Stock Exchange had hit difficulties because some of the leading potential buyers have lost interest.

Eurex was among two other parties - the Hong Kong Stock Exchange and the venture capital firm Blackstone Capital Partners - that are understood to have withdrawn their interest in recent weeks, citing corporate governance and ownership issues as well as concerns about its declining worth.

Eurex announced in January that it planned to offer a range of futures and options contracts as part of a new US derivatives exchange it would establish in early 2004.

The move was prompted when the Chicago Board of Trade rejected an offer from Eurex of continuing to use an electronic trading platform provided by Eurex since the late 1990s.

The CBOT instead chose Liffe-Connect, developed by London-based Euronext-Liffe, Eurex's arch-rival in Europe.

The CBOT's decision to switch from Eurex to Euronext-Liffe immediately transformed the CBOT's relationship with Eurex from co-operation to one of potentially intense competition as Eurex intends to use its new US exchange to compete head-on with the CBOT's core US treasury bond futures contracts, as well as possible other products.

Eurex laid out in a "consultation document" posted on its website on Wednesday what it called "discussions" about the possible format of a US options exchange operation. It is intended for its 430 members, of which 72 are based in the US.

Eurex's US members are currently allowed to trade euro-denominated products on Eurex, which operates under German-Swiss legal jurisdiction. However they cannot trade US dollar denominated products until Eurex has established, or acquired, a US derivatives exchange under US rules.

Walter Allwicher, Eurex spokesman, said the consultation document "should facilitate dialogue on the expansion of all our business into US based products".

"It discusses a market model but not how we set up the exchange because we still have the option of doing it ourselves or in possible partnership and we will evaluate which one fits best," he told the Financial Times.

Although the consultation document does not address the issue of futures products, this did not mean that Eurex was not considering them. "We haven't committed so far to which will be the first product. We've only said that we want to have the full range of products ready in 2004," Mr Allwicher said.

The consultation document (available on www.eurexchange.com) said "The Equity Options Exchange" would be a fully automated securities market under the jurisdiction of the US Securities and Exchange Commission. It would list options on the most active US stocks and exchange traded funds (ETFs).

It would use a system of competing market makers, rather than a model reliant of designated market makers, which is also sometimes used in the industry. Options on the planned equity options exchange would be "fungible" with other "multiple listed options" at the Options Clearing Corporation - that is, positions taken on securities at the new options exchange could be offset by others at the OCC.

The exchange's trading system would also be based on existing technology used by Eurex.
 
It is a fundamental hallmark of Eurex that timestamps precede MarketMakers unless they better the price. Other than fees, there is no advantage to being a MM in Eurex.
 
Mon April 21, 2003 04:16 PM ET
By Rosalind Krasny

CHICAGO, April 21 (Reuters) - The expected arrival in the United States early in 2004 of
Eurex, the brash German-Swiss exchange that has surged to No. 1 in world futures trade, is
threatening to shake up the clubby world of Chicago exchanges.

The Chicago Mercantile Exchange and Chicago Board of Trade -- Nos 2 and 3 in world
futures volume -- have bickered in the past. In practice, they prospered by not competing with
each others' contracts. Eurex may end that cozy era.

"The end game is to wrestle these financial markets away from Chicago," said one CBOT
director.

Speculation abounds about whether Eurex will enter the fray by buying an existing exchange,
starting a new one, or some combination of the two.

Since announcing in January it would set up shop in the United States in early 2004, Eurex
has been cagey about revealing specifics. But industry watchers think details will start to
emerge very soon.

The first step could be for it to hook up with the Board of Trade Clearing Corp., the entity that
has been clearing CBOT trades for 77 years. The CBOT last week said it was forging a
clearing arrangement with the CME, a move that many in the industry believe was prompted
by the threat of Eurex establishing a clearing link with BOTCC.

Industry sources said Eurex has been in talks with BOTCC about a clearing link for years and
could unveil a deal soon.

BUY AN EXCHANGE?

Once Eurex establishes a link to clear its trades, the next step could be to buy an exchange,
industry sources said. A prime candidate would be the BrokerTec Futures Exchange and
BrokerTec Clearing Co. of Jersey City, New Jersey, allowing Eurex to inherit a relationship with BOTCC and
possibly tip-toe through a regulatory minefield.

BrokerTec, a Wall-Street-backed, all-electronic exchange that lists financial futures such as U.S. bonds, grew
out of frustration with the CBOT and its commitment to an open-outcry trading floor. Eurex also is all-electronic.

Despite its blue-chip pedigree, BrokerTec has made few inroads on CBOT's franchise. Its trading volume in
March was 182,950 contracts. CBOT 10-year note futures, alone, traded an average of 539,073 contracts a
day in March.

BrokerTec has outsourced clearing and processing services to BOTCC since trading started in November
2001.

Now, a BrokerTec board member, Michael McErlean, is joining Eurex's management team-in Chicago.
McErlean was formerly global co-head of futures at Goldman Sachs, and once a colleague of Rudolf Ferscha,
Eurex's CEO.

Sang Lee, analyst at Celent Communications, a research advisory firm in Boston, said a Eurex acquisition of
BrokerTec has been one of several rumored strategies.

"It is not easy to gain exchange status in the U.S.; it is much easier to buy someone (already) in the
marketplace," Lee said. "Eurex being fully electronic and BrokerTec being fully electronic, it would probably
make sense."

The CBOT board member said Goldman Sachs and the big New York houses have pushed Eurex to buy
BrokerTec and hook up with BOTCC to advance their electronic trading agenda.

NO REAL COMPETITION

Until now CBOT, CME and Eurex have tended to circle each other warily but each controlled their own piece of
the lucrative global interest rate futures pie.

CME Eurodollars is the world's most active rate futures contract, while the CBOT trades futures on the U.S.
yield curve from 30-day Fed funds to 30-year Treasury bonds.

Eurex trades the German yield curve from one month to 30 years and the Swiss curve from 8 to 18 years.

In a rare case of competition over a specific futures contract, Eurex, formed in 1998, quickly won the battle for
the large German Bund futures contract with London-based LIFFE.

Eurex won the battle of the Bunds with low transaction costs and an electronic trading platform -- a strategy it is
expected to repeat in the United States.

Industry sources have suggested other ways Eurex could launch in the U.S. derivatives market. Earlier this
year, Eurex posted on its Web site -- and then quickly withdrew -- a draft plan for a U.S. options exchange.
Eurex said the posting was made in error and was for "consultation purposes" only.

Last week, Eurex reiterated that its planned U.S. exchange would offer "a full range of derivatives on U.S.
interest rates, indexes and equities." Eurex said talks with market participants and U.S. regulators were
"advanced."

An options industry source said that Eurex has "definitely been looking at purchasing one of the smaller
exchanges."

Spokesmen for BrokerTec, BOTCC and Eurex had no comment on any possible deals. (Additional reporting
by Doris Frankel)
More...

www.reuters.com/financeNewsArticle.jhtml?type=mergersNews&storyID=2598976
 
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