Newspaper article The Christian Science Monitor

Ottawa Discourages Trading of Canadian Bond Futures in Chicago

Newspaper article The Christian Science Monitor

Ottawa Discourages Trading of Canadian Bond Futures in Chicago

Article excerpt

STARTING today, Canadian bond futures will be traded in the pits of the Chicago Board of Trade alongside pork bellies, corn, and soybeans. It is a development the Canadian government is not pleased about.

A Canadian bond future is a contract to deliver a Canadian government bond at a set price at a set future date. Futures belong to a family of financial instruments called "derivatives" because they derive their value from an underlying equity, bond, mortgage, or other instrument.

Until now, trading in Canadian bond futures has been the exclusive province of the Montreal Exchange. The Chicago Board of Trade (CBOT) is opening its own trading because it senses that the developing market for such futures is ripe.

But if Canada's federal Department of Finance has anything to say about it - and it does - trading in Canadian bond futures will once again be the sole responsibility of the Montreal Exchange.

Yet retaking control means winning what many describe as a fast, brutal contest between Montreal and the CBOT that could last anywhere from a few weeks to six months. "Experience shows that two markets trading in the same product, at the same time of day, will not continue to exist together," says John Ballard, vice president of derivatives at the Montreal Exchange. "We want to make sure that it will be our market that remains."

So does the Canadian government. In recent meetings with Canadian brokers, Department of Finance officials outlined a strategy to help Montreal. In at least one such meeting last week, department officials communicated to Canadian brokerage firms the government's desire that they not do any deals involving the CBOT's Canadian bond futures, brokers who were at the meeting told the Monitor.

"Point blank, the Department {of Finance} is doing everything in its power to discourage Canadian brokers from trading in the Chicago contract," says Curt Hussey, a futures trader with the Toronto Dominion Bank. "At this point, there is a verbal understanding {between brokers and government} not to participate. But when push comes to shove, {the government} could put more serious measures in place."

In a phone interview, a Finance official denied that the government had asked or pressured firms not to trade in Chicago. …

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