Firms Reportedly Sour on Futures
Chicago’s futures trading floors are abuzz with talk that more firms will quit the futures markets shortly because of lack of profitability.
Officials at the firms being named either deny the reports or decline to respond to what they contend are groundless rumors.
But such reports continue to circulate, probably because a lack of profitability in the business may indeed justify fewer market participants.
Commission fees, for example, have been slashed as pit brokers compete for the smaller amount of business available from institutions--which more frequently execute their own trades or simply aren’t trading as much.
“It’s tough to make a good business out of the futures industry,” says Les Rosenthal, former chairman of the Chicago Board of Trade and managing director of Rosenthal Collins Group Inc.
In its Sept. 2 issue, Securities Week reported that Citicorp’s U.S. futures trading division, Citicorp Futures Corp., “is soon expected to sharply curtail its operations and could possibly exit the business.”
A spokesman at Citibank in New York declined to comment, saying, “We don’t comment on market rumors.”
Jack Wigglesworth, marketing director of futures operations at Citifutures Ltd. in London and chairman of the London International Financial Futures & Options Exchange, said the reports are groundless.
“These rumors disturb me because it is business as usual here--the London futures operation is doing very well,” he said.
He said the report may stem from cutbacks a few weeks ago by Citibank in its equity product business in Japan.
Two big players did retrench in futures last year.
Chase Manhattan Bank halted futures brokerage--but then reentered the business this year after merging with Chemical Bank and absorbing its futures brokerage arm.
And Refco Inc., the futures industry powerhouse brokerage firm, sold a number of seats in what was widely viewed as a shift from straight execution of trades to a more full-service brokerage business.
In recent years, many institutions have pulled out of the Chicago Mercantile Exchange’s currency futures markets, and trading volume for currency contracts has declined.
Leo Melamed, CME chairman emeritus, said it doesn’t reflect well on the markets when the exchanges lose big-name firms.
A former Chase Manhattan broker, who asked to remain anonymous, said some banking firms are pulling out of the markets because profits don’t justify the risks.
“At most bank [brokerage firms], 60% of the revenues come from bank trading,” he said.
