The Risk Controllers: Central Counterparty Clearing in Globalised Financial Markets

13

The Chicago Roller Coaster

13.1 COMMON CLEARING FOR SCREEN-BASED TRADERS

By the late 1990s, Chicago's futures exchanges were under pressure.

They were no longer the most modern in the world. Although both the CBOT and CME had introduced screen-based trading systems for after-hours activity, the influence of the local traders on each exchange ensured that most trading was still conducted by open outcry in the pits.

Efficient, cost effective screen-based trading technology enabled exchanges in continental Europe, led by Deutsche Terminbörse (DTB), to increase turnover and market share. LIFFE, chastened by the loss of its benchmark 10-year Bund futures business to DTB during 1997, announced in March 1998 that it would switch most contracts to screen-based trading in 1999.

Away from the exchanges, more and more derivatives were being created and traded OTC in a global market place. The 1993 G30 report, which focused exclusively on OTC derivatives, had caught the trend. Whereas turnover of exchange-traded derivatives and OTC products grew in parallel between 1987 and 1992, OTC activity expanded significantly faster after 1993.

The US$4.45 trillion notional amount of OTC derivatives outstanding at the end of 1991 was about a quarter higher than the equivalent US$3.52 trillion total for exchange-traded derivatives. By the end of 1998, the notional amount of OTC derivatives outstanding was US$51 trillion – nearly four times the $13.55 trillion notional amount of exchange-traded instruments ...