5. CME's Block Heads
It wasn't quite a scene from Norma Rae when an assembly of CME (CME) traders walked off the job; then again, it wasn't quite normal either.
A group of independent floor traders, or so-called "locals," boycotted the trading of options on Eurodollar futures last Friday morning as a show of solidarity against privately negotiated "block trades" that they maintain are putting them at a disadvantage. The protestors caused the market to go quiet, but not entirely silent, until they returned later that afternoon.Put very, very simply, Eurodollar contracts are bets on moves in interest rates and, like the action at the NYSE (NYX), there is a hybrid system for trading options on those contracts. Some are traded electronically and some are traded via open outcry in "pits" where locals yell and scream at each other to arrive at a fair price. And then sometimes, when the deal is really big, customers avoid the system entirely by matching a buyer and seller away from the market, and then report the price back after the fact. It's these block trades that caused the locals to storm out last week because they didn't see the action, let alone snag a piece of it. Like we said, we ain't talking about Attica here. The inmates didn't take over the asylum because of pit overcrowding or unsafe working conditions. They just took an extra-long lunch to bemoan the fact that more and more business is moving away from them, either to cyberspace or to backrooms where orders have less of a chance of being front-run. And let's be honest all you locals, if you had to shop a huge chunk of sophisticated merchandise around, what would you do? Parade it in front of all your friends in the pit like chum to sharks, or get it as far away from your pals as possible? Exactly. Quite honestly, we'd rather hear you cry over spilt milk than over the open outcry system. Look fellas, we understand your position and we sympathize with your plight, however, it's not the CME that's passing you by, it's technology. Your argument that customers can get better pricing in the pits is as tired as John Henry's arms after he battled the machine. So strike all you want, but we all know what happened to that guy. Eventually, he struck out.
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