CME Reduces Variability

Terry Flanagan

Market participants need stability and reliability from the exchanges they trade on, and they also need performance, which often boils down to speed. The two attributes represent a push/pull of sorts for exchanges, for whom overemphasizing one can compromise the other.

The challenge is a never-ending one, even for long-established, leading exchange operators such as CME Group and its highly regarded Globex derivatives-trading platform.

“Updating Globex is a constant,” said Ian Wall, managing director of enterprise architecture for CME. “We’re forever updating Globex for the ability to maintain and improve performance variability, whether it comes in incremental steps or revolutionary leaps.”

Speed is a must-have offering for exchanges – faster data, transactions and response times. An exchange may not need to be faster than rivals, but it can’t be slower. To enable clients to manage risk robustly and efficiently, consistency is critical.

In late summer through October of 2012, CME Group rolled out a significant Globex update that was “mainly focused on reducing variability by 98%, a significant milestone,”  Wall told Markets Media.  It’s an ongoing CME priority to bring down variability to as close to zero as possible, he added.

Balancing speed and reliability is a delicate dance for an exchange, as is maintaining a consistent experience for all customers.  “If there is any edge, everyone wants to be on the same side of it,” Wall said. “We consider all of the elements of speed, reliability, stability and fairness as we strive to meet obligations. It is not simple.”

Aside from reducing Globex’s variability , Wall’s current slate of initiatives includes helping customers manage Dodd-Frank compliance, moving into new markets, adding new products, and improving connectivity.

CME has created a swap data repository for foreign exchange, interest rate swaps, credit default swaps, and commodities to provide regulators with a better view of prices and volume in the more than $600 trillion OTC derivatives market. Market participants direct swap trades to it by using CME interfaces and third-party connectivity points.

In accordance with Dodd-Frank, swaps must be traded and cleared on such platforms and transaction data needs to be centrally stored in SDRs; CME aims to provide market participants with an efficient and cost-effective way to access SDRs.

CME Chief Executive Phupinder Gill told investors earlier this month that for the first quarter of 2013, the exchange posted record trading volume and revenue from Asia, up 24% and 31% respectively, at the same time it anticipated the launch of CME Europe and added new products like interest-rate swaps to the CME Clearing Europe slate.

Wall noted that CME’s global technology network is the backbone of the exchange operator,  providing hubs in disparate geographies to enable local-customer connectivity to CME. The architecture allows more market participants better access to liquidity in their chosen products, which in turn catalyzes trading in far-reaching regions and evolving exchange-traded and OTC asset classes, he said.

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