Global competition is becoming fierce. To have any chance of competing in this global environment, US stocks have had to seek consolidation to survive the monolithic power of mergers like NYSE Euronext and Eurex’s aggressive move to enter the US market. Although this activity seems exciting on the surface, the movement of the big fish to eat the small fish causes many victims. It is clearly seen that floor brokers and traders are affected by these consolidation moves, which are driving the markets to trade electronically, but all support staff are also negatively affected, many of whom have been doing his job for years with little prospect of being properly re-equipped and re-trained at this point.
The most prominent merger of commodity exchanges has been the merger of CME and CBOT. This merger has brought together the two oldest stock exchanges in the United States under one roof. The combined power of these two exchanges will allow CME Group to compete in today’s new environment. It will be able to cut costs, transition to e-commerce, and use the combined capital power of the merged exchanges to acquire competitors, such as NYMEX, and increase its ownership position in joint venture partners, such as the Singapore Stock Exchange (SGX).
From their humble beginnings, the CME and CBOT have not only made themselves relevant to the 21st century, but are also considered serious players. Smaller exchanges like the Kansas City Board of Trade and the Minneapolis Grain Exchange will have a hard time continuing their exchange life quietly and without interruption. There is no doubt that in the near future they will be absorbed in some way to remain competitive.
Critical Commodity Exchanges Around the World
At a speed unprecedented since the 1990s, futures exchanges have been popping up all over the world in the most unlikely places. From China and India, both countries that banned futures in the 1950s, to places like Dubai, futures trading is skyrocketing. This global growth in the development of commodity markets has been a major factor contributing to the global revival of commodity prices. As countries around the world begin to use futures markets as a form of price determination, disparities in the value of goods around the world are rapidly beginning to dissipate. Big markups, once the domain of aggressive importers and exporters willing to scour the globe for bargains, are becoming harder to come by as electronic marketplaces become more connected around the world.
Porcelain
In China there are two major commodity exchanges. There is the Dalian Commodity Exchange and the Shanghai Futures Exchange. They each comprise 50 percent of the Chinese market in terms of dollar volumes traded. On the Dalian Stock Exchange alone, the total trading volume in 2007 reached 1.67 trillion US dollars. The Futures Industry Association recently reported that the Dalian Exchange has been the dominant futures exchange for the past eight years. With just 110,000 investors in a nation of 1 billion people and a growing middle class, the Dalian Stock Exchange is poised to be the largest stock exchange in the world. Currently, the exchange has been limited to trading soybeans, soybean meal, soybean oil, corn, palm oil, and linear low-density polyethylene. The Chinese government has established these limits in large part to control the rampant fraud and unscrupulous behavior that existed in the early years of China’s re-introduction of commodity trading. The Dalian Commodity Exchange has stated on its website that it intends to publish a pork/pork belly futures contract, a coal futures contract and a commodity index futures contract in 2008. Dalian bourse also plans to launch options on its actively traded soybeans. and corn futures contracts.
Dubai
The only question is “What took them so long?” Dubai, one of the jewel cities of the United Arab Emirates, has finally established its own gold, commodity and energy exchanges. With just 6 percent of its revenue generated from oil, Dubai has a long history of promoting free trade in the region. With multiple free trade zones in media, technology and manufacturing, Dubai is one of the most ethnically diverse and business-friendly cities in the world. Established in 2005, the Dubai Gold and Commodities Exchange is fast becoming one of the most important exchanges in the region. Located right in the middle between Europe and the East, this exchange helps provide the continuous trading that a 24-hour market needs to thrive. At the time of writing this article, the market trades in gold, silver, euro, British pound, Japanese yen, Indian rupee and fuel oil futures. The exchange is expected to develop product offerings in steel, jet fuel and cotton.
A second exchange, the Dubai Mercantile Exchange, will be the first energy exchange in the Middle East. Created as a joint venture of Tatweer, NYMEX and Oman Investment Fund, it is poised to become an international competitive powerhouse for the region.
India
Multi Commodity Exchange (MCX) is expanding its presence around the world. Although it operates an exchange in India, it is also a major partner of the Dubai Gold and Commodities Exchange. Headquartered in Mumbai, the exchange has adopted a policy of working with the spot and futures markets in key agricultural commodities. This has led it to retain 72 percent of the Indian market share. Given that India is the number one importer of gold worldwide and currently imports over 3,000 tons of silver per year, it is no surprise that MCX ranks first and third in silver and gold futures trading. Combine that with India’s consumption of 2.4 million barrels of oil per day (according to cia.gov), and it’s no wonder MCX is number two in the world for natural gas futures contracts and number three in crude oil futures.
Brazil
The Brazilian Mercantile and Futures Exchange (BM&F) is the fourth largest exchange in the world, according to the Futures Industry Association. It is also the number one exchange in Latin America. With an average daily volume of 1 million contracts and its recent partnership agreement with CME Group, the exchange is poised to play a major role throughout North America. It is certainly a major player in the futures market, providing futures contracts on gold, feeder cattle, live cattle, Arabica coffee, robusta coffee, cotton, crystal sugar, corn and soybeans.
Dalian Commodity Exchange, Shanghai Futures Exchange, Dubai Mercantile Exchange, NYMEX, Oman Investment Fund, Multi Commodity Exchange, MCX, Brazil Futures & Mercantile Exchange, BM&F
What does this mean for him? Market?
With the constant merging of exchanges from around the world, new and more interesting products are constantly being created. There is a greater effect of setting commodity prices in China or Brazil and how they impact the opening of commodity prices in India or the United States. The rules and regulations for stocks, commodities and indices quickly become the concern of an international market.
Various forms of trading and types of contracts that are considered OTC in one country, may be illegal in another, and may be stuck in limbo in another country are still owned by the same corporation. This brave new business environment leads to both a world of opportunity and a world of landmines and problems, both legal and logistical.
As CME Group begins to aggressively flex its financial muscle in the field of acquisitions, industry players are becoming increasingly skeptical and concerned about the implications of an all-encompassing monolithic exchange. CME Group, NYSE Euronext, US Futures Exchange (formerly Eurex US) and ICE face a multitude of obstacles in offering their exchange and clearing services. Banks and industry experts are aware of the consolidation efforts. They are beginning to realize that the concentration of clearing and exchange services may lead to higher prices for them in the long run.
Where once merchants could rely on competition to minimize their transaction costs, it has become apparent that when one group owns 10 percent in one exchange, owns 35 percent in another exchange, and is about to acquire another, the The competition that allowed them to shop around for the best possible price is slowly evaporating. Add to the simmering rebellion of the banking and brokerage community the fact that many of these acquisitions involve trades that were once exclusively involved in stocks or futures, but rarely both, a recipe for disaster is on the horizon. So while the push to merge and develop a global electronic exchange is a foregone conclusion from all this activity, regulators are light years away from how best to operate in this cross-border community.
New products are constantly being developed around the world, and various rules and regulations will need to be adjusted to accommodate them, or an entire generation of regulators will need to be retrained in their auditing roles. Cash markets around the world are affected by stock and commodity exchanges in remote regions simultaneously using price discovery to determine the true value of multiple underlying assets. In this environment, there is a growing schism over what activity is acceptable or not acceptable and which regulator or regulators have jurisdiction over what is happening.
A good example of this regulatory schism is the CFDs and Single Stock Futures (SSF) fiasco that occurred in the United States. An antiquated law, the Shad-Johnson Agreement, separated the joint efforts of the stock and futures markets for almost two decades. By the time the Commodity Futures Modernization Act of 2000 went into effect to allow SSF trading, the rest of the world had already passed it by. Currently, South Africa hosts the largest SSF exchange in the world with 700,000 contracts daily, which dwarfs the 26,000 contracts traded by the last SSF exchange in the United States, OneChicago.
On the contrary, CFDs are experiencing tremendous growth. They are used in at least 12 different countries, with more countries joining every day. Unfortunately, since the US Securities and Exchange Commission maintains strict regulations on OTC trading of financial instruments, the products cannot be offered in the United States, although traders outside the country can buy CFDs on companies and indices. Americans. How US regulators will react to pan-global commodity exchanges wanting to increase revenue by offering CFDs to their client base is unknown, but the question will arise sooner rather than later.
