Last week’s election at the Chicago Mercantile Exchange could set the stage for another year of political infighting.
The results gave heart–and at least one board vote–to allies of Jack Sandner, who is stepping down as chairman because of term limits but remaining a director.
Losing ground in the election were his adversaries at the Equity Owners Association, who had won big in the 1997 balloting that brought Chairman Emeritus Leo Melamed back to power.
As the clout of the Merc’s opposing forces becomes more evenly matched, the potential for gridlock increases, some believe.
Even so, that threat may inspire the newly elected board to exert more independence from perennial leaders Melamed and Sandner.
A lot depends on the performance of the new officers, to be picked when the board meets Wednesday.
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Among the candidates to become the next chairman are two who were re-elected last week with the most votes in their membership categories: Jeffrey Silverman and Thomas Kloet. Other talked-about candidates include Scott Gordon and David Silverman (no relation to Jeffrey).
Could any of those Merc veterans hold their own with Melamed and Sandner? The board may well hedge its bets by awarding Sandner a paid position akin to Melamed’s $200,000-a-year appointment as senior policy adviser.
Challenges: The new chairman of the Merc will face a trial by fire right away.
The Futures Industry Association, which meets Thursday in Chicago, is pushing for a final deal on common clearing.
For years, the Merc and Chicago Board of Trade have debated the idea of combining their clearing systems, which guarantee trades and enforce capital requirements. Trading firms, represented by the association, contend that unifying the systems would save the industry millions of dollars.
The exchanges worry that common clearing would compromise their ability to compete with each other in product development.
But they also want to keep the trading firms happy, in part to stave off any concerted effort to launch an electronic trading system, which would compete with their products. A tough decision looms.
Looking south: For a while, Brazil’s Bolsa de Mercadorias & Futuros was one of the world’s hottest exchanges. Now, it’s also one of the smartest, according to Board of Trade Chairman Patrick Arbor.
After a visit to Sao Paulo last week, Arbor said the BM&F’s recent moves to increase the size of its major contracts were paying off, even though they mean a decline in trading volume. The contracts remain “very healthy and very strong,” he said.
The Brazilian exchanges are so healthy and strong, he said, that they might join the Board of Trade’s Project A electronic trading system.
Connections: Electronic trading is a hot issue across the Atlantic, too: The screen-based system of Frankfurt’s Deutsche Terminborse continues to win market share in German bund futures from the open-outcry pits of the London International Financial Futures & Options Exchange.
On Jan. 9, a busy day in the markets because of the release of surprisingly strong U.S. employment data, nearly 60 percent of bund futures traded through the German screen.
For at least some Chicagoans, that spells opportunity. Six months ago, proprietary trading group Marquette Partners launched a separate firm known as Marquette Electronic Brokerage, which offers direct access to the German exchange.
U.S.-based commodity trading advisers are responding, said James Heinz Jr., a partner in the firm and former floor trader at the Board of Trade. Demand is especially strong on evenings when market-moving news occurs.
It’s a business that could grow as electronic trading grows, Heinz said: “We see it expanding into Project A, Globex and more.”
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