CME Spared Open-Outcry Options Traders, But for How Long?

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Is CME Group Inc. starting to lose its rationale for letting options traders stick around the pits, yelling and waving their hands to buy and sell the contracts?

Even as the exchange operator shut nearly all of its open-outcry futures trading this year, CME spared the options pits in Chicago and New York. For years, CME has said options are complicated, so it’s tough to shift the business over to computer screens -- explaining why it still lets humans gather together in person.

On Thursday, CME spent time during its quarterly conference call highlighting the growth of electronic options trading on its exchanges. “Electronic Options Growth Leads to Deeper, More Diverse Markets” a slide declared in its presentation. CME touted the fact that 53 percent of its options business was conducted on computers in June, up from 50 percent in June 2014.

“What’s key for us is that we don’t force the markets to move,” John Pietrowicz, CME’s chief financial officer, said on the conference call. “We want the market to determine it.”

For now, CME plans to keep the options pits open.

“We have no conversations on the table whatsoever to make changes on those platforms today,” Executive Chairman and President Terry Duffy said Thursday in an interview. While products including energy options are more suitable for electronic trading, others, like Eurodollars, still need open-outcry trading, he added.

CME generates more than $100 million in revenue from its options pits a year. That compares with total revenue of $3.1 billion at the company in 2014.

‘Remain Viable’

“The pits remain viable for the options,” Phupinder Gill, chief executive officer of CME, said on the conference call with analysts.

“The general trend is we’re going to go closer and closer to 100 percent electronic until there’s an event that forces us to reconsider whether we want to put all our eggs in one basket,” said Steven Todd, an associate professor of finance at Loyola University’s Quinlan School of Business in Chicago. Certain investors want the additional service of the trading pits for the transactions that are more challenging, Todd said.

CME on Thursday reported second-quarter revenue of $820 million, topping the average analyst estimate of $811 million, according to data compiled by Bloomberg. Adjusted earnings of 95 cents a share beat the average analyst projection of 92 cents.

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