The Chicago Mercantile Exchange (CME), the largest US futures exchange, has became the first overseas derivatives market to open an Asian telecommunications hub in Singapore, designed to improve access and reduce connectivity costs for current and potential CME users in the region. It is part of a growing trend which allows fund managers to reduce trading costs in specific markets.
Commenting on the development, CME’s CEO Craig Donohue said: “CME’s Singapore hub is a key part of our global growth strategy and builds on the success of CME Globex, which is the most widely distributed derivatives electronic trading platform in the industry.”
With the hub now operational, CME wants to take advantage of what it believes will be rapid growth throughout the Asian financial markets in the next decade. It is estimated that 36 per cent of the world’s exchange-traded derivatives volume was generated in the region last year.
The CME has been the leader in partnering with Asian exchanges. In 1984, it was the first to initiate a mutual offset agreement with the Singapore Exchange, and more recently established MOU with the Shanghai Futures Exchange to pursue the potential development of futures products relevant to the Chinese marketplace.
Fund managers and other customers using the hub connect to CME Globex via circuits ordered through CME-approved local telecommunication vendors. Instead of paying the long distance call charge to Chicago, customers will now only pay the local fee, but with direct access to the exchange. The CME estimates that the cost savings (connectivity) to users in Singapore will be the same as in Europe - roughly 70 per cent on average.
Jack F. Sandner, CME Special Policy Advisor and former CME chairman said: “It really all comes down to liquidity and innovation. Essentially you are trying to offer markets that appeal to the world and at the same time create the liquidity in addition to use and channels.
“China and Asia are a whole part of the world that will be driven into a free market, with a host of products in equities and in fixed-income. The CME has given real thought to and articulated on the model: building product, innovative ways of presenting those products and the distribution channel.”
As part of its European strategy, last year CME launched six hubs in key European financial centres - including Paris, Milan, and Frankfurt – following the opening of the inaugural hub in London back in January 2002. In Europe, figures for June 2005 showed the average daily volume of futures contracts was around 250,000.
Arman Falsafi, CME managing director for Europe and Asia says: “Since launching in London, we have gone from having 30 connections to the London hub to 65 across Europe, with each one potentially having behind it tens of clients and client sites connected to that connection.”
LIFFE Administration and Management (Liffe) also received regulatory approval last month as a recognised trading system provider from the Monetary Authority of Singapore after a six-month wait. This will enable Euronext.liffe to introduce a telecom communications hub in Singapore jointly with the Chicago Board of Trade (CBOT), which shares the Liffe.Connect electronic platform.
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