Chicago Exchanges: Working against the grain
Last month the grain floor at the Chicago Board of Trade voted in a chairman after its own heart. To the big banks trading on the Chicago exchanges it looked like another setback for the modernization they crave. It's not just electronic trading that's at issue, but also cooperation - and possibly mergers - between Chicago's three derivatives exchanges that may prove vital to stave off competition.
Near the entrance to the Chicago Board Options Exchange's trading floor is a notice detailing member seat prices. Early last month the bid stood at $500,000, the offer at $525,000, and the last seat sold had gone for $500,000. It's a number the CBOE is proud of. The exchange hit its 25th birthday last year, making it the youngest of Chicago's three derivatives exchanges, yet its seats are dearer than the Chicago Board of Trade's. A full seat at the CBOT, 150 years old in 1998, fell to $400,000 early that year, down from a high of $850,000 (it has since rebounded to near $500,000).
That a newer exchange, with a 50% market share in the high-growth product of stock options and a more technologically advanced trading floor, should cost more to join might not seem surprising at first sight. But the CBOE was an offshoot of the CBOT, and any full member of the latter is automatically allowed to trade at the former. This highlights the rut the CBOT finds itself in. It is saddled with a huge mortgage and is rumoured to have paid anything between $30 million and $80 million for its link-up with Eurex in Frankfurt, and maybe as much again for the right to trade Dow Jones products.