To hear Charles Minnaar of the New York Cotton Exchange tell it, the Chicago Mercantile Exchange’s loss is his gain.
For several months, Minnaar has been struggling to promote a new, bigger version of the New York Stock Exchange composite index futures contract at the Cotton Exchange’s financial division. Though it’s known as the Large, the product has attracted only a small amount of interest.
But in the last few weeks, it has finally started to click, Minnaar said, with more than 1,500 contracts changing hands, and the number of open positions, or contracts outstanding, rising sharply.
The reason? Institutional traders upset by the Merc’s decision to split the Standard & Poor’s 500 contract are experimenting with the Large, he said.
Some institutions didn’t like the Merc move. Big hitters such as Salomon Brothers protested the plan in comment letters to the Commodity Futures Trading Commission.
The Nov. 2 split raised customer trading costs, giving an unjustified windfall to the exchange and its independent local traders, some firms claimed.
As senior vice president for marketing and product development at the Cotton Exchange, Minnaar was happy to encourage such thoughts about his big rival.
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“What they did was done for the exchange’s benefit as opposed to the users’,” said Minnaar, a former Chase Manhattan Bank executive who grew up on a South African sheep ranch. “Exchanges have to be careful they don’t become hostile environments. We like to feel we’re customer-friendly.”
The Merc disagrees with Minnaar’s assessment. “The split of the S&P has been a very good thing for all participants in the market,” said Merc President Rick Kilcollin.
Liquidity is better, and trading volume, which hasn’t quite doubled from pre-split levels, will more than double in coming months, he said.
Won’t competition from the Large make that difficult? “We don’t view that as a threat,” Kilcollin said.
“I actually thought it wasn’t trading.” He can’t be blamed for that: The Cotton Exchange lumps its Large volume and open-interest into the figures published for its regular index, Minnaar said.
Getting together: The Cotton Exchange won’t be called that much longer.
On Dec. 22, members of the Cotton Exchange and the Coffee, Sugar & Cocoa Exchange agreed to merge, forming the Board of Trade of the City of New York.
In the first stage of the merger agreement, which is set to close June 30, members of both exchanges will retain their existing trading rights and privileges. In six years, after a series of payments have been made, each member of the merged exchange will get equal trading rights.
The merger “reflects the desire of both memberships to create a stronger, more diversified exchange,” said Cotton Exchange Chairman Albert Weis.
At least some Chicago trading pros think that noble sentiment could spread westward, especially if the Merc and Chicago Board of Trade agree to unify their trade-clearing systems.
A common-clearing deal, viewed by some as a prelude to merger, could come as soon as January.
Credit crunch: The financial turmoil in Japan continues: Last week, the parent of Sakura Dellsher, the Chicago-based trading firm headed by Merc Chairman Emeritus Leo Melamed, was in the cross hairs of S&P’s credit-rating analysts.
Among other adjustments, S&P said it lowered its rating on the long-term senior debt of Sakura Bank Ltd. to triple-B from single-A-minus.
The bank’s capital ratio and operating efficiency compare unfavorably with its peers, the ratings agency said. Asset-quality problems hurt the outlook, S&P said.