CME raising fees on eve of rival's debut

CME Group Inc. has raised trading fees at its futures markets, just as a competitor exchange prepares to open its doors.

The fee changes, described in an 11-page notice on CME’s Web site, reduce prices on some products and raise them on others. Overall, the changes “will result in a minimal increase in revenues/overall rate per contract,” a CME spokesman said. The changes go into effect Aug. 1.

CME’s announcement just before rival ELX Futures L.P.’s planned late-June launch underscores its dominance in the futures-trading world and contrasts sharply with the strategy of a predecessor in dealing with a similar upstart just five years ago.

In 2004, the Chicago Board of Trade — bought by CME last year — cut fees on some products to zero, days before Eurex US was to begin offering trading in Treasury futures. Traders credit the move with preventing the exchange from gaining a foothold.

Since those days, CME has grown significantly, swallowing up not only the CBOT but also the New York Mercantile Exchange, whose fees, already higher than the average fees at CME and the CBOT, won’t change under the new fee schedule. CME’s three exchanges now handle more than 90% of U.S. futures trading.

ELX, based in New York and backed by Wall Street banks and a handful of Chicago trading firms, plans to offer Treasury futures at 9 cents per contract, below CME’s 11-cent average. Richard Repetto, a New York-based Sandler O’Neill analyst who has been following CME and the CBOT since their initial public offerings, said ELX still will face an uphill struggle competing with CME.

“There are other factors besides fees,” Mr. Repetto said, noting that ease of trading at CME might result in overall lower transaction costs.

“Assuming CME’s incumbent volume enables its traders to quote tighter markets, other traders might focus on best execution at a lower tick, rather than trading on an incrementally cheaper platform,” he wrote in a note to investors Tuesday.

CME's new fees will reduce costs for some high-volume Treasury futures traders, a strategy the exchange has used in the past to boost trading and liquidity. "Changes to our fees are reflective of the current market conditions and ongoing changes in our customer base," the CME spokesman said.

Christopher Allen, an analyst for Pali Capital, points out the changes will boost fees for floor-based traders. Overall, he said, they are "at worst, revenue neutral and at best mildly positive to revenue levels."