The latest merger talks between the Chicago Board of Trade and Chicago Mercantile Exchange are said to have started in earnest when the Merc dangled its Globex 2 system as bait–an attractive morsel, indeed.
Globex 2 is a newly refined system, supposedly far superior to the Board of Trade’s so-called Project A electronic trading platform. Most important, Globex 2 is ready to be launched next month.
Trouble is, the Board of Trade already has a deal with the all-electronic Eurex exchange in Frankfurt. And that could lead to an impasse in the Merc-Board of Trade merger talks.
“We are on a resolute course for implementation of the Eurex alliance,” said Board of Trade Chairman Patrick Arbor.
The Eurex deal will cost the exchange far less than the rumored $60 million, he said, and the Board of Trade will be an equal partner, not junior or subordinate.
The deal brings the Board of Trade a world-class trading system, a widespread network of terminals and access to the top European product, German government bonds, Arbor said.
Just one problem: The updated Eurex trading system is due in July. By that time, given the pace of change in the industry of late, the Merc could be rolling out Globex 3.
Another option: Chicagoan Paul Liang, whose investment firm owns more than 100 memberships at the nation’s five options exchanges, has an idea for boosting Chicago Board Options Exchange seat prices.
It’s simple, Liang said in a recent interview: Sever ties with the Board of Trade, the CBOE’s founder.
Because Board of Trade full members can exercise rights to trade at the CBOE, seats at the options exchange never will reflect the full value of its markets, Liang said.
Under his plan, outlined in a letter to members of both exchanges, the CBOE would pay the Board of Trade $280 million for its exercise rights, or roughly $200,000 per Board of Trade full member. In one swoop, more than 500 CBOT seat owners who now trade at the CBOE would get the boot, Liang said.
To retire the debt it would incur, the CBOE would sell 280 seats at $1 million each–more than double their current value, but a reasonable assessment of their worth sans the Board of Trade, Liang said.
In the final analysis for CBOE members, the gains of ousting the exercisers would more than outweigh the dilution of selling seats, he said.
Calling that an “interesting idea,” Board of Trade Chairman Arbor sounded skeptical. “The last time this type of concept was floated . . . it had a life of about 10 minutes at the Board of Trade.”
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Liang, whose firm owns five CBOE seats, conceded, “It could be a hard sell,” but added: “If not this, we have to look for other means of separating from them.”
Making a move: To hear Kathryn Meyer tell it, no one was more surprised than she about her imminent departure from the Merc for Refco Group Ltd. “This kind of came out of the blue,” she said.
As head of the Merc’s clearinghouse division, Meyer was to be a key player in the combined Merc-Board of Trade clearing organization now being formulated. “That had been my plan,” she said.
But the new job as chief operations officer for global listed derivatives at the Chicago-based trading firm was too good to pass up, she said. Besides overseeing listed products, Meyer said she will get exposed to cash-market, over-the-counter and asset-management businesses as well: “It’s a broader job than I have here.”
She starts within a month.