CME, Reuters Promise Open Standard For PMT

The after-hours electronic trading system being jointly developed by the Chicago Mercantile Exchange and Reuters Holdings PLC will include other financial information vendors, according to Reuters and CME executives.

When they announced plans to build Post Market Trade (PMT) in September 1987, Reuters and the CME said the electronic marketplace would be based on the Reuter Dealer Trading System, an advanced workstation (TST, September 14, 1987).

Assuming it receives regulatory approval, PMT will operate during the 16 hours a day when the CME floor is closed. PMT will allow CME clearing members and their authorized customers to enter orders directly into the system, which is expected to be launched in 1989.

The lack of any reference to other vendors' terminals since PMT was announced never meant that Reuters planned to exclude them, says John S. Hull, executive vice president for Reuters North America.

"We do not want to restrict access to PMT because that would restrict liquidity," Hull says.

Jack Walsh, vice president for PMT at the CME, says there has been no change in strategy regarding the participation of other vendors in PMT. "It has always been the intent to open up the architecture of the system," Walsh says.

So why didn't anybody at Reuters or the CME mention other vendors until Telerate and Intex Holdings Ltd. decided to jointly offer automated trading systems in competition with PMT? (TST, March 14, 1988)

In announcing their joint venture at the Futures Industry Association conference last month, Telerate and Intex stressed their automated marketplace would be based on multiple vendors and exchanges.

Two vendors contacted by TST both said that PMT's open architecture is news to them. Both executives asked not to be identified. "We've been asking the Merc where PMT leaves us ever since this thing was announced and they haven't had anything to say," says one vendor. "If Reuters is really going to allow outside terminals to access the network, I'm all for it."

In the first phase of PMT, all transactions will be entered through Reuter terminals, but the second phase will give keyboards and screens of other vendors access to an RDTS controller, says Hull.

For instance, he says that a CME clearing member or an authorized customer with a Quotron 1000 terminal could participate in PMT without having an RDTS workstation. The RDTS controller would be located on the customer's premises and would be included in the service fee for access to PMT.

Hull says that Reuters hasn't been out soliciting other vendors' involvement in PMT because "we've been too busy trying to get our own screen and keyboard attached to the controller. As soon as we have that accomplished, we plan on opening up the architecture."

Reuters is holding "active, positive discussions" with other exchanges about joining the electronic trading system, Hull says. Under the agreement between the CME and Reuters, exchanges are prevented from trading contracts on PMT that compete with future and existing CME products.

For instance, because the CME lists Eurodollars and Treasury bills, no other exchange can trade an interest-rate contract on PMT. The only way the Chicago Board of Trade could put its Treasury bond contract on PMT would be to trade it through the CME, says Hull.

"If the CBOT wants to list its T-bond contract with the Chicago Mercantile Exchange or work with us in this venture, we'd be happy to discuss it with them," he says.

The CBOT and the CME jointly developed a computerized trade reconstruction system to time all trades to the nearest minute, but the two archrivals usually cooperate only when the futures industry is threatened by Congress or the CFTC.

Although it has held discussions with vendors about the potential for an electronic marketplace, the CBOT has answered the 24-hour- trading question by extending its hours and negotiating exchange linkages.

While CME executive committee chairman Leo Melamed has been touting the benefits of PMT to Japan's Ministry of Finance, the CBOT has become the first U.S. market to reach an understanding with the Tokyo Stock Exchange.

Yen bond futures have been trading on the TSE since October 1985 and the exchange plans to launch stock index futures this summer. In Japan, financial futures are traded by stock exchanges, not commodities exchanges.

Under the agreement between the CBOT and TSE, the CBOT could begin trading futures on the yen bond and a Japanese stock index by the end of the year. The CBOT will also help the TSE introduce U.S. Treasury bond futures next year.

The CBOT's plan to add early morning hours to coincide with the European trading day may jeopardize its proposed link with the London International Financial Futures Exchange. LIFFE won't be too happy if its customers decide to trade U.S. Treasury bond futures in Chicago instead of London. If LIFFE doesn't link up with the CBOT for U.S. T-bond futures trading, it may end up trading Eurodollars on PMT through an agreement with the CME.