U.S. Futures Exchange
|US Futures Exchange|
|Founded||2004, relaunched 2007|
|Headquarters||141 W Jackson Blvd, Suite 1460 Chicago, IL 60604|
|Key People||John Spiegel CEO; Danijel Medic, head of technology; Kevin Davis, chairman|
|Products||Foreign exchange, equity indexes and renewable energy futures|
The US Futures Exchange is an U.S. registered futures exchange offering electronic trading of derivatives, relaunched in April 2007 with a focus on retail and institutional products generally unavailable on other exchanges.
The Chicago-based USFE was rebranded under new ownership following the October 2006 acquisition of a majority stake by Man Group and its MF Global brokerage unit from Eurex, which retains a minority holding after its legacy organization, Eurex US, failed to gain market traction following its launch in 2004.
The revamped exchange has concentrated on developing the retail market with binary options and currency products, and moved into the institutional sector through a series of partnerships to list equity index derivatives while expanding into new areas such as renewable energy products.
The exchange also plans to use its low-cost structure – it has just 25 employees – to provide a “turnkey” platform for the listing of products developed in partnership with third parties.
The USFE also has a page on MySpace, the social networking platform.
The operation was conceived as a full-service electronic exchange, part of its German-Swiss parent’s plan to create a global trading platform with access for the full trading days in Europe, Asia and North America. Eurex held 80 percent in the venture, with a group of 17 investment banks holding the balance.
Eurex US received approval from the CFTC in February 2004, despite fierce opposition from some U.S. exchanges which had expressed concern about the regulatory oversight of a foreign-controlled entity..
However, the launch drew a competitive response from the CBOT, which cut and waived fees in an effort to stem the shift in order flow to Eurex US, which had waived its own fees in an bid to gain traction.
Volumes dwindled from more than 40,000 contracts in the first two days of trading, though rebounded with the launch of new incentive programs and plans to list its parent’s European products – approved by the CFTC in October 2004 - before falling again in the wake of the CBOT’s competitive response.
A year after its launch, Eurex US had captured around five percent of volumes in benchmark Treasury products from the CBOT, and extended its opening hours in April in an effort to capture more business from Asia.
While U.S. Treasury volumes remained light, Eurex said the creation of a common clearing link – allowing U.S. traders access to benchmark euro-denominated products through the Eurex US platform had boosted overall business.
The competition with the Chicago exchanges intensified in September 2005 with the launch of currency futures, taking Eurex US head-to-head with the CME, which lowered its own trading fees ahead of the move. Eurex US subsequently filed an anti-trust complaint against the CME and the CBOT, alleging repeated anticompetitive behavior and unlawful attempts to block the entrance of a new competitor to the market.
A further strategic review saw Deutsche Borse approach Man Group and its brokerage unit - then known as Man Financial - in late 2005 as potential investors. The UK group announced in July 2006 that it had agreed to pay $23.2 million for a 70 percent stake in the business, with Eurex retaining the remaining 30 percent. Man also agreed to invest a further $35 million in the business.
The spin-off of MF Global has made it the largest single shareholder in the USFE, with a 49.9 percent stake, with Man Group’s holding reduced to 17 percent. Both companies have committed to a proportionate reduction in their holdings to bring in other partners. Eurex retains a 27 percent stake, with management and other investors holding 6.1 percent.
The new USFE launched its first product on Apr. 20, 2007, a binary future based on the outcome of the takeover battle for the Chicago Board of Trade between the Chicago Mercantile Exchange and the IntercontinentalExchange. The company announced plans in October 2007 to develop the binary events complex with weekly options based on the performance of four asset classes: oil, gold, silver and three currency pairs - dollar/euro, dollar/yen and dollar/Australian dollar. A technical launch is planned for December 2007, with formal trading in the first quarter of 2008. The acquisition by MF Global in January 2007 of ChoiceOdds, an independent UK-based financial binary trading firm, is expected to lead to Asian and European OTC contracts developed by the firm being listed on the USFE.
The suite of equity index derivatives includes futures contracts based on 16 Morningstar Style Indexes and on the USFE's International Securities Exchange’s sector indexes.
The first ISE products were launched on Sep. 14, 2007, under a multi-year partnership with the options exchange, which is now controlled by Deutsche Börse. They included futures with quarterly expiries based on the ISE’s water, homebuilders, natural gas and gold indexes. ISE lists options based on the indexes. Credit Suisse and Tradelink are among the firms providing liquidity for the products.
Wind-power contracts, derived from the NORDIX Financial Wind Indexes created by Weather Bid, were launched Aug. 24, 2007, offering seven contracts based on speed from five wind regions in Texas and two in New York state, with monthly expiries. The indexes are composed of deviations from 20-year historical wind-speed averages compared with daily figures. The suite of renewable energy futures will be expanded to include contracts based on hydro, solar, geothermal and biomass-derived power.
The USFE’s push into the retail market saw its first foreign exchange contracts listed on Sept. 21, 2007. The Spot Equivalent Futures trade on a 23-hour basis, with six initial currency pairs including the US dollar against the euro, yen, sterling, Swiss franc, Canadian dollar and the Australian dollar.
The first fixed-income products are slated for launch in the first quarter of 2008, with futures based on four indexes licensed from Lehman Brothers. Credit derivative products are being developed, with futures based on the government debt tranche of Dow Jones’ CDX index, including credit default swaps on Fannie Mae and Freddie Mac, the federal US housing finance agencies.
USFE announced on Nov. 12, 2007, that it would exclusively license the Bombay Stock Exchange’s (BSE) benchmark SENSEX Index. US dollar-denominated futures trading began on Apr. 4, 2008. USFE’s SENSEX contract allows eligible US investors to participate in India’s equity markets without requiring American Depository Receipt (ADR) authorization. The SENSEX Index is composed of 30 major Indian stocks and is regarded as the country’s premier stock market index. The SENSEX’s value has risen more than 600 percent since its low in May 2003.
- USFE Takes the Field with a New Game Plan. SFO Magazine.
- Application of U.S. Futures Exchange, L.L.C. for Designation as a Contract Market Pursuant to Sections 5 and 6(a) of the Commodity Exchange Act. U.S. Commodity Futures Trading Commission.
- USFE seeks new friends on MySpace. Financial Times.
- Speech by James Newsome, CFTC chairman. CFTC.
- Eurex Chief Quits Following Boardroom Split. Financial Times.
- Man Injects Life Into Dying Börse Arm. Financial Times.
- MF Global F-1 filing. Securities and Exchange Commission.
- USFE Takes a Bet on Chicago Bid Outcome. Financial Times.
- Press release. MF Global.
- Press Release. USFE.