Chicago is definitely the Second City for most people working on Wall Street, as suggested by that famous New Yorker cover showing a native’s view of the world west of the Hudson as an alien wasteland.
But the Chicago Tribune says that the city’s futures markets have flourished, in part because they don’t do OTC trades and their trades go through a clearing house, something New York firms are finally backing but only for some index products. (See Wall Street Journal piece below).
“Chicagoans primarily buy and sell commodities, foreign currencies, US Treasury bonds and stock options through the CME Group or the Chicago Board Options Exchange,” notes Trib reporter Joshua Boak. “The prices on those contracts are public and all deal go through a clearinghouse, which ensures that brokerage accounts have adequate funds.”
In other words, a Bear Stearns crisis is unlikely because the Fed doesn’t have to worry about unknown counterparty exposures … the deals have been done and cleared. Now New York seems to be coming around to a central counterparty, at least for a few OTC derivatives.
That would provide transparency; the flip side it is would threaten fat margins on custom contracts. No surprise then that, as Boak says, the CME group is among those looking to provide exchange services for OTC derivatives.

Filed under: Technology, risk