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  • QA 135
    Question:
    Could price differences occur between the open outcry and the electronic trading of the New York C Contract? Arbitrage in other words?
    Background:
    During my regular visit I read the text on the new electronic trading option in New York (Answer number 133). Very interesting! What do you think might be the possibilities of price differences between the outcry and the electronic systems? Arbitrage in other words?
    Asked by:
    Processor/Exporter - Brazil
    Answer:

    In our view the answer is NO because this is a single market, using both an open outcry and an electronic system. Trades through either method are fully fungible, i.e. totally and absolutely interchangeable.

    This is not to say that because of timing very slight differences might not temporarily occur. If so we guess that people will monitor these in the hope of making a profit. Of course this would not constitute proper arbitraging because the two sides of an arbitrage operation are different. This is not the case here.

    The New York C market is entering a new era for futures trading and it may well be that what was done for years by traders on the floor, will in the end be done in cyberspace. But, during this transition we do not believe the market place would tolerate any notable price differences between the two systems. Instead we think such differences, if any, will mostly be fictional and will not persist.

    NB: For more on arbitrage itself please go to Q&A 040 and 098. The new electronic trading system in New York is discussed in Q&A 133.

    Posted 09 February 2007

     

    Related chapter(s):
    Related Q & A:
    Q&A 040, 098, 133