In a decision that could heat up the battle for U.S. Treasury futures market share, the Cantor Exchange (CX) last week received permission from the Commodity Futures Trading Commission (CFTC) to perform block trades of its long bond and 10-year note futures products. The CFTCs approval will enable participants in CXs market to execute trades of 100 or more contractsfor the designated productsdirectly between each other, providing institutional investment managers with increased power and leverage to work their orders.
In the past, prior to execution, block trades for U.S. Treasury contracts had to be funneled to the Treasury pit of the Chicago Board of Trade (CBOT)the Chicago derivatives exchange that the CX, since its launch last spring, has been trying to steal market share from. But now, via block trading at the CX, institutions that want to get around the pit will have two options: primary market makers and futures commission merchants.
A source close to the CX says that the exchange is mainly targeting its new block trading capability at buy-side firms, including commodity trading advisors, hedge funds and pension funds. Through the CX, he says, those types of firms will now be able to trade large blocks of U.S. Treasury contracts in a more direct and less expensive manner.
One option the CX offers institutions that want to perform block trades is the right to call one or more of the exchanges designated broker/dealersor, primary market makers. Instead of routing an institutions block order to the CBOTs pit, the primary market maker will be able to execute against that order, acting as the principal in a trade.
The second option allows institutions to deal directly with futures commission merchants. This group cannot act as principals for CX block trades, but can match buy and sell orders for 100 contracts or more on an agency basis. To qualify to perform block trades, a futures commission merchant either has to be a clearing member of the exchange or have a relationship with one of CXs clearing members, says the source.
The CX has already signed up a group of primary market makers to participate in block trading. The source declines to specify those firms, but says they will be listed on Cantors Web site in the near future.
The CX is owned by the New York Board of Trade and is operated by eSpeed Inc. eSpeed, the electronic trading firm that was recently spun off by inter-dealer broker Cantor Fitzgerald, is supplying the CXs trading engine. Via eSpeed, clients can also trade U.S. Treasury cash products.