Derivatives exchanges eye Asia, address large trader problem

Derivatives exchanges in Europe and the US view Asia as a significant future source of growth in trading activity. “Asia is the next wave of growth for our industry,” said Craig Donohue, chief executive of the Chicago Mercantile Exchange (CME), speaking yesterday at the Futures Industry Association’s (FIA) 2005 Future and Options Expo in Chicago. Donohue pinpointed India and China as countries with which exchanges will share ideas on issues such as trade matching and clearing services.

Hugh Freedberg, chief executive of Euronext.liffe, also views Asia as the next big step for the Europe-based derivatives exchange, but added that there are opportunities alongside the two biggest regional economies. “We would see Singapore as a high priority,” Freedberg said. According to Freedberg, there is much potential for growth in euro-related derivatives, given increased demand from end users and growing liquidity.

At another panel discussion derivatives exchange surveillance officers discussed the impact of large traders on the futures market. However, the panelists had difficulty agreeing on the basic definition of a large trader. Joseph Hawrysz, managing director of market surveillance at the Chicago Board of Trade (CBOT), said that one way to define a large trader is as one that holds a position which can influence market price.

Timothy Doar, managing director of risk management at the CME, defined it as anyone who controls 1-5% of the open interest, with an emphasis on inter-day risk profile. “What we should’ve learned from Long Term Capital Management, but one of the lessons we learned from Refco was that it’s difficult to know when there are positions elsewhere,” said Gary DeWaal, general counsel and global director of compliance at Fimat Group, a Paris-based broker, commenting on the potential for systemic-type risk from a build up of large positions.