Menu
Home
Log in / Register
 
Home arrow Business & Finance arrow Finance
< Prev   CONTENTS   Next >

Organization of Trading in Financial Futures Markets

Financial futures contracts are traded in the United States on organized exchanges such as the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Futures Exchange, the Mid America Commodity Exchange, and the Kansas City Board of Trade. These exchanges are highly competitive with one another, and each organization tries to design contracts and set rules that will increase the amount of futures trading on its exchange.

The futures exchanges and all trades in financial futures in the United States are regulated by the Commodity Futures Trading Commission (CFTC), which was created in 1974 to take over the regulatory responsibilities for futures markets from the Department of Agriculture. The CFTC oversees futures trading and the futures exchanges to ensure that prices in the market are not being manipulated, and it also registers and audits the brokers, traders, and exchanges to prevent fraud and to ensure the financial soundness of the exchanges. In addition, the CFTC approves proposed futures contracts to make sure that they serve the public interest. The most widely traded financial futures contracts listed in the Wall Street Journal and the exchanges where they are traded (along with the number of contracts outstanding, called open interest, on

March 20, 2006) are listed in Table 1.

Given the globalization of other financial markets in recent years, it is not surprising that increased competition from abroad has been occurring in financial futures markets as well.

The Globalization of Financial Futures Markets

Because American futures exchanges were the first to develop financial futures, they dominated the trading of financial futures in the early 1980s. For example, in 1985, all of the top ten futures contracts were traded on exchanges in the United States. With the rapid growth of financial futures markets and the resulting high profits made by the American exchanges, foreign exchanges saw a profit opportunity and began to enter this business. By the 1990s, Eurodollar contracts traded on the London International

TABLE 1 Widely Traded Financial Futures Contracts

Type of Contract

Contract Size

Exchange*

Reflects March 2006 Futures

Interest Rate Contracts

Treasury bonds

$100,000

CBT

20,263

Treasury notes

$100,000

CBT

35,929

Five-year Treasury notes

$100,000

CBT

11,765

Two-year Treasury notes

$200,000

CBT

17,989

Thirty-day Fed funds rate

$5 million

CBT

90,122

One-month LIBOR

$3 million

CME

22,068

Eurodollar

$4 million

CME

139,936

Euroyen

$100 million

CME

11,539

Sterling

£500,000

LIFFE

44,698

Long Gilt

£100,000

LIFFE

28,189

Three-month Euribor

€ 1 million

LIFFE

53,416

Euroswiss franc

SF 1 million

LIFFE

93,232

Stock Index Contracts

Standard & Poor's 500 Index

$250 X index

CME

646,296

Standard & Poor's MIDCAP 400

$500 X index

CME

38,575

NASDAQ 100

$100 X index

CME

55,342

Nikkei 225 Stock Average

$5 X index

CME

53,435

Financial Times Stock Exchange

100 Index

£10 per index point

LIFFE

455,905

Currency Contracts

Yen

12,500,000 yen

CME

159,182

Euro

125,000 euros

CME

132,925

Canadian dollar

100,000 Canadian $

CME

83,061

British pound

100,000 pounds

CME

69,774

Swiss franc

125,000 francs

CME

76,630

Mexican peso

500,000 new pesos

CME

52,803

*Exchange abbreviations: CBT, Chicago Board of Trade; CME, Chicago Mercantile Exchange; LIFFE, London International Financial Futures Exchange.

Source: Wall Street Journal, March 21, 2006, p. C11; wsj.com/free.

Financial Futures Exchange, Japanese government bond contracts and Euroyen contracts traded on the Tokyo Stock Exchange, French government bond contracts traded on the Marché à Terme International de France, and Nikkei 225 contracts traded on the Osaka Securities Exchange all became among the most widely traded futures contracts in the world.

Foreign competition has also spurred knockoffs of the most popular financial futures contracts initially developed in the United States. These contracts traded on foreign exchanges are virtually identical to those traded in the United States and have the advantage that they can be traded when the American exchanges are closed. The movement to 24-hour-a-day trading in financial futures has been further stimulated by the development of the Globex electronic trading platform, which allows traders throughout the world to trade futures even when the exchanges are not officially open. Financial futures trading has thus become completely internationalized, and competition between U.S. and foreign exchanges is now intense.

 
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Philosophy
Political science
Psychology
Religion
Sociology
Travel