000340 CFTC Approves First Internet Futures Exchange

Washington - After more than three years of deliberation, the Commodity Futures Trading Commission on Tuesday approved FutureCom Ltd. as the first Internet-based U.S. futures exchange.

The new exchange will initially offer cash-settled live cattle futures and options contracts, but plans to add a range of other products going forward. It is owned by the privately-held Texas Beef Group, based in Amarillo.

FutureCom will compete head-to-head with the Chicago Mercantile Exchange (CME), which dominates U.S. cattle futures trading in its open outcry pits.

By contrast, there will be no central trading floor at FutureCom. Traders will send in their buy and sell orders to the market over the Internet through personal computers, much like customers of online stock brokerages already do.

“We're going to be providing a transparent marketplace, lower transaction fees and quicker (order) fills,” FutureCom founder Bill O'Brien said. “All of those things are contributors to saying we have a better business model.”

The fledgling exchange's application had languished at the CFTC since January 1997 as the agency debated the implications of allowing Internet trading amid fierce opposition from traditional U.S. futures exchanges.

Those exchanges have already felt the pinch as foreign rivals have embraced electronic, screen-based, trading and the start of online futures trading in the United States could open up a new competitive front on their home turf.

“We're going to be recruiting from the large and small traders alike,” O'Brien said in a telephone interview. “One of the differences of an electronic trading platform over the Internet is it's truly egalitarian.”

Spokesmen for the CME and Chicago Board of Trade said both exchanges welcomed competition as long as it took place on a level regulatory playing field and the integrity of the U.S. futures markets was adequately protected.

FutureCom plans to begin marketing itself soon as possible and hopes to begin operations in three to six months. It will look to add cash-settled corn, stocker and feeder cattle and boxed beef contracts to its product line once up and running.

Some analysts, however, said the new exchange could still face an uphill battle for market share.

“I think a lot of people will stand back and watch,” said Tom Tippens, a livestock analyst with Professional Cattle Consultants in Weatherford, Oklahoma. “Sometimes, by doing so, you almost prevent it from ever being successful, because everybody wants somebody else to be the one that gets it going and provides the liquidity so it can actually get launched.”

The CFTC said FutureCom would still have to submit to some additional independent testing of its trading system before going live. It also committed to ongoing refinement of its market surveillance program once it begins operations.

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