By Maria Trombly | Securities Industry News | June 20, 2005

The Chicago Board of Trade (CBOT) has announced that it is preparing to open a telecommunications hub in Singapore, following a similar gambit by the rival Chicago Mercantile Exchange (CME). Working with its technology partner, Euronext.liffe Market Solutions, CBOT expects to go live in the third quarter, pending approval by the Monetary Authority of Singapore (MAS). The hub will provide a low-cost way for clients in Asia to reach the CBOT's financial, equity, agricultural and metals markets as well as Euronext.liffe's interest-rate, equity and commodity markets. "It's a way for us jointly to reach more people," a CBOT spokesperson told Securities Industry News.

Singapore brokers are expecting the CME's first Asian hub--six are already in place in Europe, linking directly into that exchange's Globex electronic marketplace--to go live in July. It has already received MAS approval. CME spokesperson Allan Schoenberg says that "CME's Singapore hub is scheduled to launch as planned in order to better serve its Asia-Pacific customer base and further expand global access to its markets."

ShepherdPeter Shepherd, director of sales and marketing for Euronext.liffe Market Solutions, says that the locations have already been picked for the two points-of-presence that constitute the Singapore hub.

"The feasibility and site studies are already complete," says Shepherd. There will be two sets of lines from two separate providers to these points of presence, and then additional lines will run to the member sites.

The new hub will be part of Liffenet, a proprietary network that spans the U.S. and Europe. It is used by the entire Euronext group and by CBOT.

"We're logically extending it out into Asia to meet the demands of our customers who want to reach out to that area," Shepherd explains, adding that the exchanges picked Singapore for their first Asian hub because this is where there is the most customer demand. "We are eyeing other points of presence as well," he adds. "We're closely watching the success in Singapore to see where to expand to next."

Brokerage customers in Asia will benefit because they will no longer have to go through a third-party provider and they will enjoy a reliable, robust network and high-speed connections. "There might be local challenges, but they're just logistical issues," Shepherd says. "They're not going to undermine this thing at all. This is something we've done before and we've got suitable management and logical structures around it."

While the project uses both internal staff from other parts of the world and external staff from a local systems integrator in Singapore, Shepherd could not give the total number of people involved in the project. Ongoing management of hub operations will be mostly done remotely, he adds.

"We're able to monitor this network centrally and manage this network centrally," Shepherd says. "We have a very sophisticated network monitoring division."

And, so far, everything is on track, says Shepherd. "We're working toward putting it in before the end of the year and I think it's going very smoothly," he says.

Shepherd declined to comment on how much Euronext.liffe and CBOT are spending on the project, or on exactly how much bandwidth will be available at the new hub. "It's more than enough to accommodate the CBOT and Euronext.liffe customers and much more," he says.

CME chairman Terry Duffy has called the hubs one of "several strategic initiatives to increase accessibility and cost effectiveness for European and Asian market users." The Singapore node "will reduce connectivity charges to CME Globex and enable us to continue to attract new customers to our electronic marketplace."

The European hubs have more than doubled the European customers connected to the CME. In September 2004, average daily volume from those European users rose to 220,000 contracts, from 50,000 in January 2004.

Speedy electronic trading can connect a local brokerage company to exchanges around the world, says Tan Hup Thye, regional managing director at the Singapore office of Refco, a U.S.-based futures brokerage that recently assumed the lease for the Singapore Stock Exchange's (SGX) global electronic trading center (GETC), established in 2002 to route orders directly to the exchange's derivatives market and overseas markets. "The superb speed and functionality of the electronic trading system can facilitate active and high-speed trading, so that it will finally replace floor trading," Thye says.

"The hub links the clients to the exchange and requires no payments by the local brokerages," a spokesperson at One First Trading, a leading Singapore brokerage, told SIN. The Singapore hub virtually eliminates the costs--the spokesperson did not quantify them--to connect to an overseas exchange.

The CBOT opened a European hub in Gibraltar 14 months ago and claims that it increased its number of customers dramatically.

"The CBOT is launching this initiative as part of its overall strategy to increase distribution of the exchange's products throughout Asia, where demand for liquid risk management tools is on the rise," said CBOT president and CEO Bernard Dan in a statement. "Our customers in Singapore and across the continent have requested an efficient and reliable method to directly access the CBOT's transparent, open and liquid markets, and the joint hub is designed to meet that need."

The new Singapore hubs will compete with local exchanges, and local brokers see that as a plus, according to Thye. There are two exchanges based in Singapore: SGX, which specializes in derivative products, including an equity index, interest rates, and individual stocks; and the Singapore Commodity Exchange (Sicom), known for its rubber futures.

The CBOT visited his firm in early June, Thye says, to find out what local brokers wanted from the hub. The Singapore government also recognizes the benefits that the foreign hubs will bring to the local economy, Thye says. "This is in line with the government's policy to promote Singapore as a leading financial center," he notes.

Today, Singapore is home to more than 500 banks, hedge funds and brokerage companies, according to the Singapore Economic Development Board. It is also the world's fourth most active foreign exchange trading center, after the U.K., U.S. and Japan, according to a March report from the Bank of International Settlements.

The geographical distribution of foreign exchange trading did not change noticeably from 2001 to 2004. The U.K. continued to be the most active trading center, accounting for 31 percent of total turnover, followed by the U.S. (19 percent), Japan (8 percent), Singapore (5 percent), Germany (5 percent), Hong Kong SAR (4 percent), Australia (3 percent) and Switzerland (3 percent).

Singapore isn't the only Asian target for the Chicago exchanges. Last month, the CBOT announced a memorandum of understanding with the Shanghai Futures Exchange.

The plan is to share intellectual resources and open up opportunities for development. For example, the exchanges say they will share information on futures markets operations and risk management methods. They will also work cooperatively on new product research and on the development of markets for new derivative products.

In March, the CME reached an information sharing agreement with the Shanghai Stock Exchange (SSE). "Part of CME's long-term growth strategy is to expand global distribution of our products and to add new customers throughout Asia," said the CME's Duffy.

The SSE will provide insights on the Chinese equities market, including regulations and policies, market specifications and development conditions. In turn, CME will help familiarize the SSE with international derivatives market practices, products and regulations, and assist in the derivatives product design, business development, marketing and training.

Wendy Yu contributed to this report.