US Futures Markets: The Chicago Trifecta

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29 June 2004


New York, NY, USA June 29, 2004

Celent Communications asserts that the competition between the Chicago futures exchanges is not a fight over market share of certain products, but a fight to remain viable in the overall marketplace.

When Eurex AG announced it would launch a US exchange to trade CBOT-flagship Treasury products, industry spectators feverishly debated the future of the dominant futures markets. Would the all-electronic newcomer steal liquidity from the traditional trading floors operated by the incumbents? How would the Chicago exchanges fight back? But the debate has primarily focused on issues of market share and liquidity as the barometers of success.

In a new report, " ," Celent reviews the three Chicago-based futures markets: Chicago Board of Trade, Chicago Mercantile Exchange, and Eurex US. The report analyzes the business strategies of these exchanges and finds that the incumbent markets have successfully changed the game from one based on market share to based on ultimate survival and relevance in the wider futures marketplace.

The report examines the evolution of these three exchanges. The on-again/off-again relationships of the various players in the US futures markets, including the clearing houses, are described. The report briefly describes CBOT痴 and CME痴 trading environments, including the transition toward electronic trading, and the changes to their business strategies in response to the threat from Eurex US. Their respective financial positions are analyzed. The Eurex US market structure is described in greater detail, including a discussion of the issues raised during its approval process.

Celent predicts that Eurex US will likely fail to attract the necessary liquidity to topple CBOT as the dominant market for Treasuries. However, Eurex US痴 single remaining weapon is the global clearing link it envisions between Eurex Clearing and the Clearing Corporation.

Regardless of the survival of Eurex US, CBOT and CME have successfully altered their business strategies, and changed the game from one based on market share to one based on ancillary yet crucial services. These markets have moved upstream to areas of the trading life cycle that are much less likely to be replicated, and, like so many other aspects of trading, commoditized.

According to Jodi Burns, the report痴 author, "Even if the Eurex US market does not survive, its importance in the futures markets should not be undervalued. Without the entrance of Eurex US, CME and CBOT would not have been as motivated to meet the demands of their members (e.g., fungibility) and would not have changed their old business strategies. These changes have improved the quality of the US futures markets, and for that, the US owes a debt of gratitude to Eurex. This is the perfect example of the benefits of competition."

The 49-page report contains 13 figures.


Table of contents is available online.

of Celent Communications' Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left. Non-members should contact for more information.

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