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Friday, Aug. 7, 1998
Chicago exchanges revive discussion of possible merger
Deal would unite Chicago Board of Trade and the rival Chicago Mercantile Exchange
By CLIFF EDWARDS
Associated PressCHICAGO - Merger talks have been revived between the Chicago Board of Trade and Chicago Mercantile Exchange, rivals that together control 80 percent of futures trading in contracts worth billions of dollars a day.
The Board of Trade is the world's largest futures exchange, trading everything from contracts for future delivery of U.S. Treasury bonds to corn, wheat and soybeans. The Merc, which began trading butter and eggs more than a century ago, pioneered the open outcry system in which traders stand in pits frantically gesturing to buy and sell futures and options contracts for commodities from cattle and hogs to lumber.
After years of on-again, off-again talks to merge, the cross-town rivals have been driven back into discussions by increasing competition and falling prices for membership, or seats, in the exchanges.
Just weeks after the boards of both exchanges agreed to merge their bookkeeping and other non-trading operations, officials have been discussing a complete pairing.
Many obstacles, including egos, cultural differences and competitive issues, stand in the way of a merger, the Board of Trade's chairman, Patrick Arbor, said in an interview.
``But times are different. We as an industry now face such competition from other sources that we're above and beyond that,'' Arbor said. ``There's no need for fragmentation of the market place anymore, and I thoroughly support the concept of merging.''
U.S. futures and options exchanges, and many across the globe, have been under siege from computer-based trading and over-the-counter markets that are cheaper and easier to use than the open outcry system.
While trading volume has set records this year for both exchanges, seat prices have plunged as much as 70 percent amid concern open outcry has become obsolete and will be replace by electronic trading.
In a quarterly update to members and released to the media on Thursday, Merc Chairman Scott Gordon appeared to be prepping members for change, citing major announcements in coming weeks.
``The CME must expand along two different dimensions: first, partnering with other exchanges and market participants to add products . . . and second, establishing alliances with technology vendors to ensure that our products and those of our partners have the widest distribution possible.''
Large and powerful firms increasingly are demanding exchanges do more to cut expenses that require them to keep large trading staffs. They also want the exchanges to cut transaction fees, which would require more belt-tightening on trading floors.
No exchanges have been immune to the pressure, causing a dizzying array of alliances, mergers and new business proposals in the last six months.
The San Francisco Pacific Exchange and the Chicago Board Options Exchange recently agreed in principle to a merger that would result in an exchange handling 65 percent of all U.S. securities options trading.
And earlier this year, the American Stock Exchange and the Philadelphia Stock Exchange, two of the nation's oldest financial markets, agreed to join the National Association of Securities Dealers, the parent company of the Nasdaq stock market.
Most recently, the Chicago Board of Trade's directors approved a plan to trade financial futures side-by-side with the venerable open outcry method. Membership will vote on the plan Aug. 18, and Arbor and other executives have been lobbying hard to get the proposal passed.
The exchange's main financial contracts are Treasury securities and the Dow Jones industrial average, and it currently is locked in a battle in the courts and with regulators to keep one of its biggest members, Cantor Fitzgerald, from launching a competing electronic service in conjunction with the New York Board of Trade that aims to steal the Treasury business away.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web