From the July 01, 2006 issue of Futures Magazine • Subscribe!

CBOT flexes muscle

The Chicago Board of Trade (CBOT) is increasing its fee for clearing, to 6¢ from 5¢, as well as transaction fees on exchange for physicals (EFP), exchange for swaps (EFS) and electronic trading fees on agricultural futures. The fee hike, which prompted an almost $12 jump in share price to $104.46 from $92.46 on May 31, will apply to both members and non members. In addition, starting on Sept. 1, the CBOT will begin charging for electronic exchange data. The fee will be $30 per month, per device. Firms averaging 10,000 trades per month per device are exempt.

“The general trend has been for fees to go down,” says Richard Jaycobs, CEO of The Clearing Corporation, adding that clearing is a fixed-cost business and as volume increases, fees tend to decrease.

The CBOT, which in the past has been criticized for protecting the interests of floor traders, is now as a for-profit company advancing the interests of shareholders. “We laughed about it,” says a futures commission merchant requesting anonymity, noting that if the CBOT could do 100 million grain contracts, an extra penny would give them an extra $1 million, but that the announcement alone created a $70 million increase in CBOT’s market capitalization. “I can assure you that a single penny doesn’t make a bit of difference to anybody except the very biggest players.”

Futures Industry Association President John Damgard isn’t laughing. “The economies of scale should translate into lower clearing fees,” he says, adding when the exchanges were member organizations there was a natural pressure to keep the fees down. “The exchanges are no longer managed for the members, but for the shareholders. If the customer has no alternative to do the business, that market power increases.”

In contrast, the Options Clearing Corporation, which is owned by five of the six options exchanges that clear contracts there, lowered clearing fees by almost $50 million and refunded more than $58 million in fees in 2005. Individual equity options are multiply listed and fungible. Liquidity in futures contracts tends to settle at one exchange and there is no requirement to make contracts fungible.

“It seems pretty clear to me why they are doing it,” says Chris Hehmeyer, co-chairman of Goldenberg, Hehmeyer & Co. “They are doing it to raise profits. If you want to trade corn, there is only one place.”

The CBOT clears contracts through the Common Clearing Link, a partnership with the CME and the CME collects clearing fees on behalf of the CBOT. A CBOT spokesperson says guidance on total additional revenue is not available and that the Common Clearing Link agreement with the CME is unchanged.

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