After six years of false starts, Chicago’s futures exchanges are finally talking turkey about unified clearing, but the bird is far from cooked.
Big differences still separate the opposing camps, not the least being whose approach would dominate if the exchanges come together after all.
Last week’s Chicago Mercantile Exchange proposal is, predictably, mostly Merc in its outlook. The present Merc clearing organization would form the core of a new, independent company, using the Merc’s Clearing 21 computer system. The Board of Trade Clearing Corp. would be liquidated.
Who would run that new company? Why, naturally, Kate Meyer, head of the Merc clearinghouse, said Merc Chairman Jack Sandner. “Absolutely, as far as I’m concerned,” he said. “She’s a star.”
Not so fast, countered Chicago Board of Trade Chairman Patrick Arbor.
His exchange is about to unveil a counterproposal, suggesting the Board of Trade Clearing Corp. as the main surviving entity. Since it is already independent, AAA-rated and fully capitalized, Arbor asked, why reinvent the wheel?
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As for who would head the unified organization, he said, “It could be anyone.”
FIA for it: The Futures Industry Association, meantime, is pushing hard for a unified-clearing deal. Focusing on two sticky points, it appointed a subcommittee last week on voting rights, veto power and governance and another on finances, safeguards and insurance. Recommendations are expected within a few weeks.
“We will respond in great detail to the Merc proposal,” association Chairman John P. Sievwright promised. “If (unified clearing) doesn’t happen this time, I’m not sure what has to happen to make it happen.”
The clock is ticking. The association’s president, John Damgard, is hoping for an agreement before the exchange election season begins in earnest toward the end of the year. “It’s an easy issue to demagogue,” Damgard warned.
Mulling memberships: A Chicago Board Options Exchange plan to raise cash by selling 15 new memberships won’t be a slam-dunk, exchange sources say.
Some 300 members met last week with Chairman Bill Brodsky and Vice Chairman Tom Ascher, but at least some came away unconvinced. The exchange already has 931 regular memberships, and the last one sold fetched $710,000.
Other alternatives for raising revenues include mortgaging the building, increasing dues or cashing out the CBOE’s majority stake in the Cincinnati Stock Exchange.
Member Jon A. Najarian, for one, would rather see a combination of revenue-raising steps. “It’s unfair to tax just one constituency,” he said.
So why does the exchange need the money? It’s surely spending a lot on technology. It also had to pony up $5 million to buy the New York Stock Exchange’s equity-options business this spring. And it spent an undisclosed amount to secure options on the Dow Jones industrial average.
Could another need be in the cards? How about buying the equity-options business of the Philadelphia Stock Exchange?
Sources say the CBOE would love to acquire the Philly options, which include Dell Computer, Time Warner and Fannie Mae.
A CBOE spokesman said the proposed seat sale is unrelated to the Philly. A Philly spokeswoman denied that the exchange options business is for sale. “We are not in conversations with the CBOE or any other exchange about merging our options business,” she said. Stay tuned.
Status quo: A Chicago Merc committee has tabled for now discussion about changing exchange rules to allow the membership to elect its chairman directly.
As it stands, Merc members elect a board of directors, who pick a chairman at their first meeting of the new year. That system will remain unchanged at least through the next election, sources said.
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