Trading On Reuters When CME Closed; Only Clearing Members Are Invited

PMT must first pass muster with the CME membership, the Reuter board, and the Commodity Futures Trading Commission, and a definitive 12 1/2-year agreement must be signed. An agreement in principle was approved by the CME board August 28th.

The system will operate for the 16 hours a day the CME isn't open. The CME's financial contracts will be available on PMT, as will certain instruments that look like futures and options but aren't currently traded on exchanges. Agricultural contracts won't be carried.

RDTS won't be available for PMT until early 1989, but until then Reuters will allow CME clearing members to distribute after-hour prices on the Reuter Monitor and SDS2 services. This will let the CME centralize the market for exchange-of-futures-for-physical transactions by disseminating EFP quotes on Reuters, says Ken Cone, CME director of regulatory studies. In this sense PMT can be viewed as the on-screen formalization of an existing dealer market. The CME estimates that 8-9 percent of its currency volume takes place through EFPs -- after-hours trades permitted under exchange rules.

CME clearing members will control access to PMT and will instruct Reuters to program credit limits into the system for their customers and for the locals whose trades they guarantee. However, PMT will differ from a traditional exchange in that a customer can enter orders directly if so authorized by his broker.

Whether a PMT user is a clearing member, local, or customer, he'll have to pay a terminal fee and line charge for RDTS, says Don Serpico, senior vice president, clearing, at the CME. For each trade, the CME will charge a clearing fee, which will be lower for clearing members, and a transaction fee, he says.

Reuters will receive a percentage of each transaction fee. How much hasn't been determined, but the fee will be based on accepted levels "extrapolated from the cash to the futures market," says Reuters.

Bids, offers, and last-sale prices entered on PMT will be included in the CME's ticker feed for dissemination to other quote vendors, Serpico says. An RDTS customer will be able to trade immediately on PMT prices, while subscribers of other vendors will see prices only after they are passed from RDTS to the CME, Reuters says.

By Serpico's account, PMT transactions will take place on a network based on a combination of DECNet and leased lines. "The advantage to us is that the bids, offers, and trades on PMT will be on a dedicated network," he says.

Reuters says the network used for PMT will also accommodate cash market transactions from RDTS.

PMT will be integrated into the clearing system so that positions can be adjusted in the evening. Serpico says the CME hasn't decided when to begin and end the trading day for clearing purposes.

Instinet subscribers will be able to route orders to PMT, a feature that will be attractive to program traders who execute strategies using stock index futures and the underlying equities.

Although it's an after-hours system, PMT is also expected to enable customers to send orders to the CME floor and receive confirmations during the hours the exchange is open, possibly through the recently-introduced Reuters futures order entry service.