Coffee, Sugar & Cocoa Exchange.
Since Mark Fichtel arrived at the New York Board of Trade (NYBOT) earlier this year, the futures industry has continued to undergo rapid change, and the NYBOT, with its long tradition of trading international agricultural futures and options, has responded to the radically altered competitive environment. He was asked to provide his thoughts on the direction of the industry and for the NYBOT, an organization with a unique history.
Q: What are your major goals for the NYBOT?
A: I came to NYBOT with four broad objectives: to bring technology to the NYBOT trading environment, develop new products, build alliances, and modernize the governance structure.
Q: Could you elaborate on these general objectives, beginning with the role of technology at a traditional exchange?
A: For over a century, traditional open outcry has proven itself to be an outstanding way to provide liquidity in the market. The NYBOT's coffee futures and options markets have served the coffee industry in that regard since 1882 and 1984, respectively. In addition, open outcry has provided a reliable price discovery and price risk transfer mechanism for this volatile commodity. I believe open outcry can continue to perform its basic functions effectively, but it needs to be modernized. In that regard, we are aggressively developing electronic order routing and trade reporting for both brokers and locals. We expect to roll out our electronic order routing/order book management system (EOR/OBMS) in the next few months. We believe it will provide a much less costly and more convenient way for traditional and new clients to participate in our markets.
I would also stress that along with our technological enhancement of the coffee futures market, we continue to provide important technological support for the physical market. We, of course, have a major involvement with the physical side of the coffee industry with our grading, certification and warehousing system. Our Commodities Operations Processing System (COPS) is an example of how the NYBOT coffee market has electronically reduced the mountain of paperwork for the delivery process associated with coffee futures contracts. COPS has provided a better flow of information to market users, electronically linking members, warehouses, samplers and weighers to the exchange's computers, permitting on-line access to the delivery process.
Recently, our success with the electronic warehouse receipt (EWR) for cotton has led us to encourage its use by the coffee industry. The EWR can help bring a new level of efficiency, speed and cost savings to the whole process of grading, storage and transfer of standardized physical commodities. The ability to transfer ownership electronically (and basically instantaneously) of a specific standardized unit of a physical commodity, combined with the ability to track and identify that commodity unit from producer to user, provides enormous marketplace advantages.
Concerning the whole issue of screen-based trading, experience has shown that financial products are much more likely to be the first to move to a screen-based trading environment. We are proceeding under the assumption that a move to a pure screen-based trading environment will occur first in the financial and then much more slowly in the less liquid agricultural products.
That is one of the reasons we believe that modernized open outcry, particularly in the agricultural products, will be able to compete successfully into the foreseeable future with a pure screen-based trading environment.
Q: What are the new products under consideration?
A: We are looking at a number of products that would bring new participants into the market -- for example, retail investors and trade segments, such as growers, who may not currently be using the markets for hedging or speculation. Some of these products, still in the development phase, may be "minis," and given their potential audience, they may be most appropriate for a screen-trading environment. The new contracts in many cases will be extensions of our current products (both in agricultural and financial areas). We are carefully examining all of our traditional markets, including coffee, to see what new opportunities might exist. In some instances, entirely new product areas will be developed.
Q: What kind of alliance is NYBOT pursuing?
A: We are exploring product and geographical alliances. Several potential alliances are in various stages of discussion. The direction in which the world marketplace is moving strongly suggests that clients will demand easier access to the markets. That trend alone will necessitate the formation of strategic product and geographic alliances. We anticipate participating with our new alliance partners in agricultural product areas that are not currently represented on our exchanges. We also expect to develop stock futures as soon as the repeal of the Shad Johnson Act makes such products possible on U.S. exchanges.
Q: What positive contributions does NYBOT bring to potential alliances?
A: Our regulatory and clearing capabilities represent major strengths of the NYBOT exchange markets. In the expanding international markets, demonstrated regulatory and clearing mechanisms and expertise will be significant factors in market building. We believe that our New York Clearing Corporation (NYCC) and our recently formed Division of Market Regulation position at the NYBOT bring substantial value into any alliance.
Q: How is the NYBOT responding to the trend toward a different governance structure facing exchanges around the world?
A: One need only look at all the new participants in the marketplace, as well as at the demutualizations occurring among all our major competitors, to understand the value of corporate-style governance that allows more rapid development of strategies to meet changes in a competitive environment. We expect at some point in the near future to develop a plan that will allow us to shape an organization that recognizes this imperative. We expect that such a change (along with employing technology in our markets, developing new products and building the right alliances) will be beneficial to our clients and our members.
Q: How receptive is the membership to the various initiatives?
A: In any organization with such a long history (cotton has been trading since 1870, coffee since 1882, sugar since 1914, cocoa since 1925), change is generally regarded with some concern and more than a little trepidation. As many of the members have come to see the magnitude of the change going on around them, however, they have recognized, sometimes reluctantly, that they must take action to safeguard their livelihoods and investments in the exchange. In reality, membership organizations are like large families, and while they may have their differences, they will try to do everything possible to protect all the family members. The fact remains that change offers members rewards over time, but it can also involve short-term risks and pain. At present, our members are grappling with that basic conflict. But I am encouraged by their increasing appreciation of the fact that for the majority to do well, those at the greatest risk will have to make the most radical adjustment in their familiar way of doing busi ness. It will mean a necessary shift of focus from the short to the longer term.
NYBOT OFFERS 510(1(5 HIGHS FOR COFFEE
While trading volume in the Coffee "C" contract hos been lower in a year of depressed coffee prices, the Coffee, Sugar & Cocoa Exchange, Inc.'s certified warehouse stocks have reached their highest levels since 1995. As of July 7, 2000, the total CSCE-certified warehouse stocks had reached 2,644,187 bags of Arabica coffee. The New York Board of Trade (NYBOT) grading facility has seen an enormous increase in activity, certifying over a nillion bags of coffee in the first three months of this year.
The New York Board of Trade is the parent company of the Coffee, Sug r & Cocoa Exchange, Inc. and of the New York Coffon Exchange (NYCE). Through its twa exchange and their subsidiaries and divisions, including the New York Futures Exchange INYFE), FINEX and Ci rus Associates, NYBOT offers a variety of agricultural, currency and index products. The Cantor Ex hange (CX), a NYBOT venture with eSpeed, Inc., provides a full-time electronic market for U.S. Treasury and Agency futures.
The NYBOT coffee market trades the Coffee "C" futures contract and a tions on futures. Each futures contract is for 37,500 lbs. (approximately 250 bogs) of exchange-certi ied Arobica coffee produced in several Central and South American, Asian and African countries.
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|Publication:||Tea & Coffee Trade Journal|
|Date:||Sep 20, 2000|
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