Trading Desk – Dow Jones Launches a Fiber Optic Index

Posted: 12/2001

Trading Desk

Dow Jones Launches a Fiber Optic Index
By Tara Seals

Dow Jones & Company Inc. has launched an index for bandwidth trading, a sign that the market finally may be cultivating financial attributes.

The Wall Street Journal publisher reports on four routes on a monthly basis: New York-Los Angeles, New York-Miami, Dallas-Los Angeles and Los Angeles-Seattle.

“We believe that there is a need for a benchmark,” says Antoine Eustache, Dow Jones’ global editor for energy and commodities indices, adding that there is great demand from end users and carriers for independent tracking of the evolution and growth of the sector, and also for a benchmark that could be used for risk-management purposes.

Previously Dow Jones worked with RateXchange Corp. to provide indexing for capacity trading, but this summer it struck out on its own, severing that relationship. The company declined to comment on the development.

Commenting on the impetus behind its new efforts, Eustache says capacity trading will see more investment banking firms entering the space to capitalize on risk management as upward volatility and education increase. “The bankers just need to know there is an opportunity, and secondly the producers need to know that this can empower them,” he explains.

A small number of risk-management products, such as puts and options, are available now. Also, the past few months has seen the emergence of an OTC derivative market, says Dow Jones.

“If I were a CFO speaking for any telecommunications company, I would be screaming about the prices declining, ‘We’re bleeding, and there are people out there willing to take the risk, why don’t we unload it?’ ” says Eustache. “I think the opportunity is there for the suppliers of bandwidth but I don’t think the message has been made clear to them.”

Aside from awareness, he cites lengthy provisioning times, and leadership within the industry as key impediments to the financial products developing around trading. “Right now the whole thing is in the hands of bandwidth sellers for provisioning,” says Eustache. “And you really don’t have a central figure, a powerful CFO that is looking at the big picture, and I think once that truly happens, you will see a market evolve.”

While the development of a liquid market has been slow, Eustache says the process is mimicking other markets that have come before. “I don’t see this evolution as being anything unusual from what has happened in other markets,” he explains. “You need a period of education and people need to understand what this new sales channel will mean for them.”

Dow Jones also is developing spot market indices. “As you know you can’t right now speak very clearly in terms of a spot market as we know it, meaning for immediate consumption,” he says. “But we are tracking data for short-term markets while waiting for the liquidity component to come.”

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