In June, Eurex US unveiled a package of incentives to try to encourage greater use of its fledgling futures exchange. Since the launch of the exchange in February, it has failed to gain traction or to take liquidity from the Chicago Board of Trade (CBOT).
In a bid to boost liquidity on its platform, the exchange is to waive its fees for US Treasury futures for all market participants until the end of the year. It will also introduce a revenue-sharing initiative aimed at attracting more smaller, high frequency proprietary traders. It will enable brokerages to share in 40% of Eurex US’s 2005 revenues and 25% of 2006 revenues.
Additionally, Eurex is introducing stipends to incentivise market makers in the US and Europe to provide liquidity during extended-hours trading, following regulatory authorisation to operate in 11 European countries.
The Eurex package is a response to its relative lack of impact on CBOT’s volumes. For example, the Chicago exchange says that the volume in 10-year Treasury note futures rose to a record 17,785,763 contracts on CBOT, while at Eurex US, trading activity in 10-year Treasury note futures was 19,846.
Some argue that five months into a battle with Eurex, the CBOT has seen off its rival for the present, having responded smartly to the competitive threat by a raft of price cuts and new services. While some commentators argue that Eurex US could be a serious long term threat, the CBOT’s introduction of fee cuts, and in some case fee waivers, even before Eurex was able to get its US subsidiary up and running, has prevented Eurex’s all-electronic model from attracting the sort of liquidity it had hoped for.
