Open mike night at the ICE

“Yesterday, if the Merc matches the [ICE] bid it is a no brainer, now the Merc has to pay a premium—this is a guy with vision.”

That is how one Chicago Board of Trade full member, who stuck around for four hours at the meeting between the InterContinental Exchange Chairman and CEO Jeff Sprecher and CBOT members to discuss the ICE offer for the CBOT, reacted to the meeting. That same member was upset with the Chicago Mercantile Exchange's justification for its lower bid, noting that the synergies that make the deal more valuable to the CBOT also make it more valuable to the CME. “Why does the Board of Trade have to pay the discount? The entire burden is put on Board of Trade members.”

The 300 plus CBOT members who attended the meeting had varying opinions regarding the ICE offer and CBOT/CME agreement but all seemed to have gained a large measure of respect for Sprecher, a man many of them knew little about.


Sprecher stayed for more than four hours answering every question coming his way. Many CBOT members in attendance compared this favorably to how a similar meetings with the CME leadership went shortly after ICE announced its unsolicited bid, when the question and answer period was cut short. They also indicated that the level of communication from its own board has been inadequate.

The membership peppered Sprecher with many questions regarding Wednesday’s announced agreement with the Chicago Board Options Exchange (CBOE) regarding CBOT member exercise right privilege (ERP) on the CBOE. While many members praised Sprecher for forging an agreement in a dispute that has lingered for decades, many viewed the agreement as wholly inadequate. Several made the point that the $500,000 agreement would be a “deal breaker not a deal maker.” Ron Manaster head of CBOT member firm Eagle Market Makers questioned Sprecher’s authority to negotiate on their behalf.

Sprecher later said he was not surprised with the response on the ERP issue but was committed to resolving it and indicated that he was open to further negotiation, noting that CBOE Chairman and CEO Bill Brodsky was likely listening to the reaction of CBOT members.

Sprecher attempted to quell fears that ICE would somehow relocate the CBOT. “The U.S. futures and derivatives business is centered around Chicago,” Sprecher said. Despite this a wire story went out during the meeting that said he would not make that commitment. Later Sprecher definitely stated the CBOT would stay in Chicago.

Veteran CBOT member Lee Stern was impressed with Sprecher’s willingness to answer questions but is still leaning towards the CME deal, although he says that the offer is too low. “My tendency is to go with Merc because it is a known quantity, they have to come up and I think they will. The synergies with the Merc are enormous, we know what to expect. Is the price right? No it is not right.”

While Stern would still vote for the CME deal he added, “[ICE] have been a step ahead of the Merc.” Along with many other members, Stern believes that the there will be additional offers. “The last chapter has not been written.”

Most members in attendance expect the CME to come back again with an improved offer. Opinions on the viability of the current CME offer range from 50/50 to dead on arrival. CBOT member Doug Erdmier, said, “I think that people would be more comfortable with a sweetened Merc deal but you are going to have people vote their pocket book.”

For other members price was paramount. Burton Stone, a 34 year member, said, referring to the CME offer, “0.40 or no deal.”

Many questions involved issues other than price. Protecting the value of Class B shares and preserving the member fee preferences was a high priority for members in attendance. According to members, in the CME deal those preferences are preserved for two years and then it is unclear what will happen. Sprecher pointed out that in fashioning his offer, he attempted to mirror the CME bid in everything but price and welcomed input from the members.

Several members wanted to know what the next step would be given they only have the CME deal to vote on. Sprecher pointed out on several occasions that the structure of the CME/CBOT agreement which included strict no shop provisions on the CBOT board, made it difficult for him to negotiate or even understand the important issue for members. He encouraged members to share their concerns with the CBOT board. “I can’t believe anyone would hold a vote they think they are going to lose. If [the CBOT board] really serves your interests, they need to talk to you,” Sprecher said.

Members where impressed with Sprecher’s desire to listen to their concerns and were somewhat frustrated with the level of communication from bother their board and the CME. “Why isn’t the Merc and Board at a forum like this,” stated one member.

Some remained unconvinced like Manaster who said, “This is AOL buying Time Warner.” The one member who remained until the end disputed that analogy. “Is this the next Microsoft or the next AOL? I think it is the next Microsoft. Here is a guy who is a visionary; his M.O. is listen to your customers. I want this guy running the company that I have most of my investments in.”

As for how the meeting went, Sprecher said, “We came here to listen; I want to digest what I heard.”

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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