As head of ABN AMRO Chicago Corp., Jack Wing presided over one of the year’s bigger deals in the futures business: The buyout of Citicorp Futures in April. Turns out, that acquisition was just a warmup. To hear Wing tell it, the futures business has plenty of room left for consolidation, and ABN AMRO will be in the thick of it.
“We have a lot more bullets in our gun,” Wing said in an interview. “We will be building a global futures business.”
Wing’s plan to expand his futures presence comes amid widespread complaints in the industry about shrinking profits. So why look for acquisitions in troubled times?
For one, “Prices are reasonable,” Wing said. Futures commission merchants have gotten steadily cheaper as their profits have come under pressure.
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In addition, Wing and his bosses at Dutch bank ABN AMRO, which took over Chicago Corp. in January, like the balance that futures can offer. “A large futures business (has) a certain sort of counter-cyclicality built into it,” Wing said. So when stocks go flat, commodities can pick up some of the slack.
Already, Wing’s operation has expanded sharply this year. Head count is up to 1,600 from 1,100 in January. Among his new additions: Thomas A. Kloet, treasurer of the Chicago Mercantile Exchange board.
Wing also has beefed up research, with an eye toward a greater investment-banking presence. And he’s growing in asset management.
So where will he look to expand futures? Among other spots, Latin America, Wing said. “There are a lot of customers of the bank down there,” he said. “It’s a little bit of missionary work.”
Still, he’s confident his Dutch owners will give him enough time to spread the gospel of futures. “We’re profitable, though not highly profitable yet,” he said. “They’re willing to build.”
On the mark? Since he runs the world’s foremost electronic exchange, Jorg Franke’s vision of the future should come as no surprise: He sees computerized trading making rapid strides.
Within a year, Franke’s Deutsche Terminbourse will capture the majority of volume in German government bund futures from archrival Liffe, the London International Financial Futures Exchange, he predicted. (A Liffe spokesman countered, “Liffe is not complacent, and is doing everything to stay competitive and meet member needs.”)
Franke also is bullish about his plan to merge DTB with the Swiss exchange Soffex onto a new electronic market called Eurex by mid-1998. Some sources say the French Matif will join as well, though others doubt it.
Electronic trading is making big strides because it’s cheaper, and more users are getting direct access to the screens, Franke said. Does it really work? “Even the huge contract volume in Chicago could be handled over an electronic system,” Franke said.
Players protest: The Chicago Merc’s plan to split its Standard & Poor’s 500 contract while doubling the tick size has, predictably, attracted protests from big institutional players.
“Transaction costs could quadruple on a round-turn basis, as market users buy and sell twice as many contracts at the wider spread,” Jonathan E. Sandelman of Salomon Brothers griped in a comment letter to the Commodity Futures Trading Commission.
Trotting out a now-familiar threat, Sandelman said higher costs will push users to evaluate “other products and markets that might be used to accomplish their trading or hedging strategies.”
At General Motors Investment Management Corp., Gary Knapp singled out the tick change: “It serves only to increase the transaction costs of all users to the benefit of those exchange members who are local traders,” he wrote.
And at Smith Barney, Michael G. Dollar worried that splitting the futures without splitting the option, too, will cause problems. “All of this will create errors for brokers and their firms,” Dollar predicted in his CFTC letter.
So is the Merc reconsidering its plans for the S&P? Nah, said CEO Rick Kilcollin. “Once it happens, everybody’s going to say, `This is the greatest thing you ever did,’ ” Kilcollin said. “The liquidity will pick up.”
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