FOW Awards: Best innovations by exchanges in the field of customer service

It’s sweet to tweet

The new buzzword for those engaged in this effort is social media, and market participants acknowledge that CME has shown a lot of them how to do it.

“I have watched first hand how CME Group has been an innovator in the area of social media,” said one of FOW’s judges. “They have become a model for many of us in financial services. There is no denying the innovation CME Group has brought to customer service through the creative use of social media.”

The bourse uses LinkedIn as a far more intelligent resource than a simple employer profile page, offering three private portals – careers in futures, forex E-Micros and one for journalists and bloggers – to communicate useful information between users and the exchange.

The group began tweeting in October 2008, after noticing how many traders were registered on Twitter. A Facebook page followed in December, providing a wide variety of information for users to share and offer reactions to in real time.

As another judge put it: “This effort is a great way to connect with clients. Additionally I follow them on Twitter and they do provide informative tweets. As this develops further, I would expect others to really follow their lead.”

But it’s not just about relentlessly churning out live market information. Truly social media demand interaction, listening to stakeholder groups and holding meaningful conversations with them in return, which is exactly what CME has done.

It is classed as a ‘Twitter engager’ by social media rating sites, indicating that at least half of the firm’s tweets are sent as a response to (or mention of) another Twitter user, generally a client of their exchanges or another member of the futures industry.

As of October 2009, the group boasted more than three quarters of a million followers, placing its Twitter page among the most followed corporate sites in any industry – a remarkable achievement.

The Pan-American highway of derivatives

Mutual order routing between two of the world’s largest and most diversified exchange groups was not a task undertaken lightly.

The resultant dynamic trading link-up is a testament to both groups’ ambition, offering market players the chance to access unconnected pools of liquidity on both groups’ exchanges from São Paulo to Chicago and New York.

First, in September, BM&F’s products were made available on CME’s Globex electronic platform; then, from February, customers using the Brazilian exchange’s GTS system could trade CME Group products.

For South America’s largest exchange to begin offering order routing to the largest bourse in the North is a major boon to Brazilian traders and investors, who gain access to CME Group’s complete range of products (including forex, equities, commodities, agricultural and interest rate derivatives).

CME’s Globex electronic trading platform is among the world’s most extensive networks, with several thousand terminals in more than 80 countries on four continents.

The opportunity to settle contracts in dollars also affords BM&F’s products a higher visibility, and renders them more accessible to foreign investors. Meanwhile, US investors have gained access through CME Globex to BM&F’s varied commodity markets, offering products such coffee, cattle and corn.

The move also offers arbitrage opportunities in forex; BM&F’s dollar future is the world’s most traded FX contract, while its options on dollar futures and dollar rollover futures have also held up strongly during the financial crisis.

The move is part of a wider crossinvestment deal between the two firms, in which CME holds a 5% stake in BM&F Bovespa and a seat on its board. BM&F owns 1.7% of CME Group.

The agreement also marks the latest phase of BM&F Bovespa’s internationalisation strategy. Forming the world’s third largest exchange by market value after last year’s merger between the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa), the new bourse ultimately hopes to position itself as the gateway to Latin America for international investors.

Worried about compliance? See Eurex for counselling

But it is also a year which may come to be seen as a watershed for the industry. New regulatory frameworks, pushed for by supranational bodies such as the G20 and Iosco and handed down through national regulators, will spell radical changes on issues such as OTC clearing and mandatory position limits for some futures contracts.

Many market participants have been left feeling swamped amid the clamour for stricter rules, with some finding it impossible to distinguish between guidelines, proposals and firm new regulations.

So it is to Eurex’s great credit that it has grabbed the bull by the horns over the past 18 months, choosing to innovate where others adopted a wait-and-see approach.

In 2008 and early 2009, the firm conducted what it termed a “compliance roadshow” in London, aimed at building confidence and shedding light on how exchanges are governed and in turn enforce rules on their participants.

Eurex customers were offered confidential one-on-one discussions with the bourse’s compliance team, allowing them to voice detailed questions, hopes and fears.

In particular, the roadshow addressed the most common situations which could break Eurex rules, general advice on where to find information and tips for compliance, the German regulatory system and identifying and understanding differences to the local regulatory system.

Eurex said the customer feedback was very favourable, and it arranged to do two more roadshows in London in 2009, together with local regulators from the State of Hesse. Turnout for those events was also strong, and Eurex reports a demand for further events in the future.

Direct Malaysian access 

In April 2008, the Malaysian stock exchange Bursa Malaysia introduced direct market access infrastructure for its derivatives market, in what one of FOW’s judges called “An impressive initiative to broaden market awareness and stimulate activity.”

DMA has made the market more accessible and more efficient to trade, enabling it to move into an automated order routing mode.

NYSE Euronext Advanced Trading Solutions supplied its SFTI technology, enabling members to sponsor and manage their clients’ direct access to the market. The system is designed to provide the low latency, privacy and high throughput of DMA with the control and risk management of traditional broker-routed flow. SFTI is the same core technology that NYSE Euronext is deploying on all its own exchanges.

Bursa Malaysia believes its DMA platform is unique, because it offers access to customers sponsored by their brokers, through a centralised gateway hosted by the exchange. Brokers can connect their institutional clients directly to the exchange’s trading system, using pre-trade risk filters if necessary.

The move connects Bursa Malaysia to a global network of other nodes on NYSE Euronext’s SFTI platform, increasing international access to the exchange and its members.

Bursa Malaysia has partnered with international trading service providers in an open approach that allows access through a variety of networks and trading applications.

For example, in May 2009 Patsystems announced that it now offered connectivity to the exchange. Take-up has been strong, with 11 brokers offering DMA to their clients.

In the first six months of operation, 130,000 contracts were traded via DMA – in the next six months, it was 490,000.

International interest has also been strong; as one of FOW’s judges said, the move should “bring a greater market access to a wide array of market participants”.

Demand has largely been fuelled by traders wanting access to Bursa Malaysia’s flagship products, Crude Palm Oil Futures and Kuala Lumpur Composite Index Futures. A year after it was introduced, one ninth of the trading volume in the former was going through DMA, and 40% of volume in the latter.

As one judge put it, DMA has “made a big difference to ease of access to that market for [our firm] and its clients.”

DME’s Oman Crude goes global

By acquiring Nymex in August 2008, CME gained a 28% stake in the Dubai Mercantile Exchange, enabling it to extend Globex’s reach still further.

In November, CME announced that it would move all DME’s contracts on to Globex, and this was completed on time in February.

DME’s most important contract is its Oman Crude Oil Future, which is becoming recognised as the first successful exchange-traded contract for oil price transparency east of Suez.

With them added to Globex, CME customers can trade all three crude oil benchmark futures on the same platform, virtually 24 hours a day. This opens up new arbitrage opportunities and wider access to a contract that reflects Asian demand for crude.

Founded in 2007, the growing UAE exchange is widely tipped to benefit if any business is driven away from European and US markets by a regulatory clampdown. However, any position limits imposed in the US would apply to the Oman contracts too.

Either way, the move appears to have been a boon for the DME. In the first nine months of this year, 370,800 contracts were traded, 15% more than the 322,300 in the whole of 2008.