CAPITAL MARKETS & COMMODITIES: Traders tackle Eurex on spoofing
By Alex Skorecki
Financial Times; Feb 26, 2004
Eurex, the world's biggest derivatives exchange, is sending executives to London today to meet angry traders who say the market for German government bond futures is being manipulated.
Ralf Danielski, head of global fixed income products at Eurex, and Nadja Urban will meet representatives of London's 2,000-strong derivatives trading community to hear their complaints.
Traders say they believe an individual or a small group is "spoofing" the market with false orders which may have netted huge profits in the past few months.
Chris Eldred, a "local" or self-employed independent trader who will attend one of today's meetings, said: "Someone out there is cornering the market. But Eurex still refuses to act."
Traders say they have been complaining for weeks about the activity which is focused on the two-year German government bond futures contract, known as the Schatz, although it also affects contracts on the five-year Bobl and 10-year Bund. Mr Eldred said: "Since January 1 they have been in control of the market from 7am until 4.30."
The big banks have been reluctant to get involved because their derivatives desks can afford to ignore such activity. But locals make their money from small price movements and although the value of their trades is smaller, they supply as much as half the liquidity in the market.
The complaints come at a sensitive time as Eurex goes head to head in the US with the Chicago Board of Trade for control of Treasury bond futures trading. In retaliation CBOT has announced it will launch Bund, Bobl and Schatz contracts of its own.
In a letter to Eurex two weeks ago London traders said the spoofer was making bids and offers at which market participants could apparently trade, but was doing so only to "game" the exchange's price and order engines and effectively shut other players out of the market. The letter suggested Eurex should adopt guidelines limiting the amount traded within "a reasonable ratio" of the amount offered or bid to be traded to prevent "insincere" displays of supply and demand.
Eurex yesterday said: "We are in constant contact with our market participants and meet on a regular basis to discuss issues around trading and trading practices.
"We take all our customers questions and concerns very seriously. Following some alerts in Schatz trading, the trading surveillance office is conducting an inquiry into this issue."
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