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New Electronic Futures Exchange Could Take On Chicago Mercantile Exchange

The consortium-led electronic futures exchange, ELX, will compete with the Chicago Mercantile Exchange (CME).

Sidebar: Department of Justice Says Regulations May Have Stymied Exchange Competition

The rumors have been swirling, and with each new tidbit of information, the buzz has been growing louder.

It started back in December with an announcement that a consortium of 12 of the big banking firms, technology providers and even a hedge fund were joining forces to launch an electronic futures exchange to take on the Chicago Mercantile Exchange (CME).

So far, the banks involved include Merrill Lynch, JPMorgan, Citigroup, Barclays Capital, Credit Suisse, the Royal Bank of Scotland, Bank of America and Deutsche Bank. In addition, three Chicago-based trading concerns -- Peak 6, Getco and Citadel -- and Cantor Fitzgerald, which will provide its eSpeed platform for the exchange, also are on board.

Finally, in mid-March at the Futures Industry Association (FIA) annual conference in Boca Raton, Fl., the name was unveiled. The exchange is called the Electronic Liquidity Exchange, or ELX.

It is being touted as a lower-cost venue for electronic futures trading. Initially, it will trade U.S. Treasury futures with plans to grow to include currencies, wheat products and stock indexes.

Shortly after the initial announcement, in late December, the interim head of the effort, Paul Saltzman, quietly left his position as COO at eSpeed and acting chief executive of the new exchange. Then, in February, it was reported that Gerald Putnam, an industry veteran with hefty credentials -- he founded Archipelago and served at vice chairman of the New York Stock Exchange (NYSE) -- might be preparing to take the reins of the Four Seasons initiative.

Considering Putnam's prowess in the electronic trading markets, this got particular notice. "Having someone like Putnam behind the initiative would give it a lot more credibility, not that it doesn't already," says Kevin McPartland, senior analyst at TABB Group. "But he has enough of a pedigree to prove he can lead an organization like this and make it successful."

But McPartland notes that Putnam's appointment still is unconfirmed at this point. "It's hard to get a feel whether it's a done deal or a rumor -- it seems to be sitting somewhere in the middle," he says. "But usually there's some basis in where these types of ideas come from."

While much is being speculated, representatives from the proposed exchange declined to speak with this reporter (or, apparently, any other reporter) about any details, including Putnam's possible appointment. Despite the secrecy and lack of details, some observers still forecast that a futures exchange to compete with the CME only can be good for the industry -- if the banks can get it up and running and get liquidity.

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