Wall Street is gearing up to butt horns with Chicago's futures markets, launching a new all-electronic bond futures exchange. But don't expect a burst of hiring.
The new exchange, to be run by Cantor Fitzgerald's eSpeed subsidiary with backing from 11 major banks and hedge funds, aims to break the monopoly on futures trading that Chicago-based CME Group has enjoyed since the merger between the Chicago Mercantile Exchange and the Chicago Board of Trade was completed last July. It will initially concentrate on Treasury note and bond futures, the CBOT's largest market.
A modern futures exchange is a technology-intensive operation. Hundreds of staff are needed to develop, operate, maintain and oversee such a platform. Before merging with the Mercantile Exchange, CBOT had 662 full-time employees and 22 part-timers, plus an additional 86 building maintenance staff.
However, eSpeed and its partners probably have all the people they need already on hand, observers say.
Trading Infrastructure Already In Place
"I haven't heard of hiring going on, which leads me to think the infrastructure is pretty much in place with the partner firms," says executive recruiter Jim Geiger of Analytic Recruiting in New York. The careers portion of Cantor Fitzgerald's Web site doesn't show any openings that appear connected with the new futures platform.
ESpeed built its brand around offering electronic trading platforms for government bonds, other interest-rate products, foreign exchange, energy contracts and futures. What's more, New York-based Cantor Fitzgerald, eSpeed's parent, tried to challenge the Chicago exchanges once before, in 1999. So its present staff and technology can probably be channeled into running the new futures exchange, which doesn't yet have a name.
Geiger says both eSpeed and the banks and trading firms it's partnered with have electronic engines that are generating real-time market prices, as well as platforms for direct market access. Leveraging those existing systems would make far more economic sense than building a new one from scratch, he says.
Another headhunter says eSpeed could opt to outsource any "fine-tuning" that's needed to adapt current trading platforms for the Treasury futures market. Even operational and sales functions might be handled within the current organization.
"It's trying to build a better mousetrap - but with lower expenses, which doesn't bode well from a jobs angle," observes Barry Silbert, chief executive of Restricted Stock Partners, which operates a platform for trading private and restricted stock.
Backed By Merrill, Citi, Deutsche, Citadel, Among Others
The new exchange is headed by Paul Saltzman, eSpeed chief operating officer. Besides a name, it has yet to select a board of directors, other executives, a clearing house or a headquarters. It also will require regulatory approval from the Commodity Futures Trading Commission before trading can begin.
eSpeed will own 25 percent of the venture, according to the Chicago Tribune. Its partners are Merrill Lynch, Citigroup, JPMorgan, Barclays Capital, Credit Suisse, Royal Bank of Scotland, Bank of America, Deutsche Bank, and three trading firms: Citadel (the giant Chicago-based hedge fund group), Getco and Peak6. The banks and the trading firms aim to realize lower trading costs than they now get from the CME Group's CBOT.
"Almost half a year into the merger, many traders have yet to realize major savings from promised economies of scale," the Tribune says. "They pay roughly the same level of fees as they did last year when the exchanges were separate, according to an October earnings report showing that contract volume and revenues from fees increased at similar rates.... By narrowly shaving fees while handling 49 percent more contracts, the exchanges' joint quarterly net income grew by 67 percent" in last year's third quarter compared wth same period of 2006, the paper says.