Internet futures exchange gets federal OK

FutureCom will offer cash-settled live cattle futures and options, allowing investors to bypass brokers to make trades quicker. The exchange's owner, Texas Beef Trading Co., is privately held.

"This kind of technology has changed the way everybody has done business," said Burt Rutherford, a spokesman for the Texas Cattle Feeders Association. "And we are by no means outside of the loop."

The federal Commodity Futures Trading Commission gave its approval after a three-year review but attached certain conditions.

Before launching, the electronic trading system must pass third-party review, and a segregated credit facility must be maintained to support the trade-clearing system once it's in operation.

FutureCom, headed by Texas Beef managing partner William O'Brien, will compete directly with the Chicago Mercantile Exchange, which traded about !
$474 million in cattle futures daily last year.

To guard against a loss, cattle producers agree to sell their stock in the future at a certain price, and a buyer agrees to pay that price. If the market rates plummet in the ensuing months, the producers would win, but if the prices rally, the ranchers would lose.

Mr. O'Brien, chairman of FutureCom Commodity Exchange, predicts that the Internet exchange could bring in more traders who are daunted by the current process and its distance from the heart of cattle country.

"There are just a lot of people who don't trade because the markets seem foreign to them," said Mr. O'Brien, who's also the managing partner of Texas Beef Trading Co.

"If people in this area wanted to hedge their cattle, they had to have someone hedge them in Chicago in the pits. It just appeared to me that there was a need for a trading platform that would bring the markets to the people," he said.

William Burks, a spokesman for the Chicago Mercanti!
le Exchange, said his exchange normally doesn't comment about other fu
tures markets. "We welcome competition," he said, when asked about FutureCom.

One cattle commodities broker doesn't see the Internet start-up as a threat to the way futures are traded now.

"People {ellipsis} will use it, but they are not going to have access to oral information that could help an inexperienced investor," said Lindsay Davis, owner of Alamo Commodities in San Antonio.

While he expects to draw new traders, Mr. O'Brien says his customers probably will be qualified and experienced investors.

Mr. O'Brien said he expects to announce a commencement date for the exchange in a about a month, and begin operation about three months thereafter.