It seems this column should be devoted to the bull run in our precious metals, and indeed, many analysts believe those markets will continue their march upward (see “Is the end of easy money the end for metals?” page 24). However, I’d rather discuss a recently struck mother lode located in the heart of Chicago’s business district. The gold in them there plains is the Chicago Board of Trade (CBOT) and it seems everyone wants a piece of it.
Already encased in the annals of industry lore is the Intercontinental Exchange’s (ICE) stealth bid for the CBOT during the annual Futures Industry Association meeting in Boca Raton, Fla. The story goes that CBOT Chairman Charlie Carey, while dressing to host the exchange’s press breakfast that morning, received the bid information while concurrently getting a phone call from ICE Chairman Jeff Sprecher giving him the news personally. Ironically, the CBOT press breakfast was called off, only to be replaced awhile later with a press conference by Sprecher succinctly answering questions from reporters who were relieved to have some real news. (see Trendlines).
This surprise “attack” by ICE seems to have cooled relations between the CBOT members and their would-be buyers, the Chicago Mercantile Exchange (CME), who as it stood, had a bid roughly $1 billion less than ICE, a fact Sprecher pointed out numerous times. The CME, seemingly stunned by the developments, followed up a week or so later with a presentation pointing out why the “generous” offer by ICE wasn’t that good, and why the CME still had a better bid.
In what can only be termed as “comical” was the war of press releases that were dashed out semi-momentarily between ICE and the CME on various reactions to membership comments or how members should interpret offers or how the interpretation was wrong to begin with. Entire forests were sacrificed in this battle of releases. Meantime, the CME presentation, held at the W in Chicago, challenged the ICE offer point by point. It was compelling. But something the ICE did when making its initial offer was that, in the terms of one CBOT member, “they wrote it for the floor.” That is, the ICE appealed to all aspects that interest CBOT members, from CBOE exercise rights to keeping its electronic gold contract, to enshrining the CBOT name. Don’t underestimate that appeal to history; after the CME made its bid last year, stating it would change the name to CME Group, someone said to me that losing the CBOT name was just plain “wrong.”
Sprecher and his team may have hit all the right points for CBOT members, but the deal maker was money. And a lot of it. After the CME’s presentation, the first voices from the floor cut to the chase: ICE offered $1 billion more, was CME upping its offer? The CME group said no, that wasn’t on the table, and if the CBOT folks had listened, they should have understood that $1 billion ICE was waving in front of the CBOT members wasn’t real money. The CME might have as well been speaking Martian because the crowd kept coming back to the fact that the CME bid was now undervalued and if it didn’t go higher, the CBOT would go with ICE. A CBOT membership vote on the CME bid originally scheduled for early April was postponed and rescheduled for July.
Traders understand value, intrinsically, and certain factors that make ICE’s offer questionable, like a clearing house that certainly wouldn’t be able to handle CBOT volume anytime soon, don’t matter. It’s all about money, and right now the CBOT is one hot nugget, and it could grow hotter as other exchanges might start mining for gold too. The fact is, in a world where people make livings scalping for dollars and cents, something like $1 billion, no matter how interpreted, IS real money.