08 January 2010

Co-Authors

Justin Schack

Director, Market Structure Analysis

Joe Gawronski

President

Rosenblatt Securities Inc.
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Dublin +353 1 855 9125

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globalexchangeanalysis@rblt.com

Rosenblatt’s Market Structure News Digest

Global Exchanges and Market Centers

Why a Rate Increase Could Happen Sooner Rather Than Later
—The Wall Street Journal

The news may not be official, but it is becoming clear that the U.S. economy emerged from its longest recession in decades some time in the past few months.

Our Take: Despite the much-sexier credit-default-swap clearing story (see “OTC Derivatives” section on page 5), the $64,000 question for CME has been and remains when the Fed will begin raising short-term interest rates, an action that should spur open interest and volume in its most important products, Eurodollar and US Treasury futures and options. The growing consensus among economists appears to be that the government expects banks to resume normal levels of lending sometime in the second quarter, and that will require the Fed to begin tightening after a long period of keeping rates essentially at zero. CME’s fortunes should improve significantly once that happens. NYX and DB1, while not as sensitive to interest-rate volumes, also should benefit as similar conditions trigger parallel responses in Europe, benefiting their interest-rate products in that region.