Tuesday, February 7, 2012

SIMEX liquidity vs the Chicago way

photo from wikipedia.org

Walking around Raffles Place in downtown Singapore today, I couldn't help but think about how close I was to moving to Singapore a decade ago to trade SIMEX eurodollars.  In part the reason why I didn't shows why SIMEX never developed a large amount of liquidity while the Chicago pits experienced exponential growth doing the opposite.  Life turned out as perfect as it could've so I wouldn't change a thing but no doubt it would've been a lot of fun to have traded a little while at SIMEX.

The overnight market for eurodollars used to be traded at SIMEX before liquidity shifted onto Globex full time and after clerking on the floor of the CME for a small trading group of roughly six traders, I got to work the overnight shift in a small, windowless Chicago office which involved watching positions, submitting orders, legging spreads and a little bit of trading on my own part.  It was a long shift, 14 hours from 5:30pm to 7:30am, but one that all the other guys who went ahead of me did within the group before getting to trade in the CME pit.

After a short time showing that I was competent, the idea of going over to Singapore started to creep in my mind.  Actually it was there for quite a while because from reading during high school (1996) of Leeson's rogue trades, I didn't think much of the scandal but focused on how exciting it'd be to work on a foreign trading floor.  When I asked the lead partner of the group I was with in Chicago if I could go trade at SIMEX because there weren't any Americans in that pit at the time and we'd have a slight competitive advantage he said, "sure go for it."  That response was too casual and so I asked him if he even knew where Singapore was to which he replied "near Tokyo" which of course is the right continent but a 7 hour flight between the two cities so not close at all.  It's pretty amazing how a 21 y/o employee of a few months w/no money could be backed w/low six figures to trade in a place where the backer doesn't even know where it is....but that's the type of thing that used to be done w/Chicago traders who'd back pretty much any opportunity. 

I flew into Singapore to hand in my application to the exchange and already had a few clearing firms that were interested in clearing me so figured things were all set.  A week or two later my application for SIMEX membership was denied because they required any trader who was backed by a firm, even a tiny one like I was with, to have the entire firm become a clearing member at the exchange.  Although I would've had better capitalization than most SIMEX locals with $100-200k to start trading in that pit, it didn't matter as the exchange required $500k minimum for a clearing member and at that rate, there wasn't enough opportunity to justify going to SIMEX vs staying in Chicago. 

The requirement that SIMEX had for backed traders was entirely opposite in how things were done in Chicago, NY, Minneapolis and KC exchanges.  All the US exchanges required was sufficient funds in an account and even those weren't sometimes needed if another trader vouched to cover any shortfall a new trader might have.  As a result, the liquidity at American exchanges grew exponentially as traders launched new careers on the same path as they once began on.  Because SIMEX set a higher and unnecessary bar to entry, it's pits were filled with mostly undercapitalized locals that didn't provide much liquidity and in turn helps explain why no Americans were in the eurodollar pit there. 

As previously mentioned, things turned out great and I wouldn't change a thing but squeezing in some trading in the SIMEX pit would've been a great experience.  I love Singapore and come here for at least a month each year so the experience is the same, just a little different.  Oh and the old SIMEX building in the OUB building got demolished and now has a new office tower in it's place so maybe no need for me to be sentimental. 
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