From the January 01, 2011 issue of Futures Magazine • Subscribe!

Zero-Sum Game: The rise of the world’s largest derivatives exchange

Zero-Sum Game: The rise of the world’s largest derivatives exchange
By: Erika S. Olson
John Wiley & Sons

“Zero-Sum Game” tells the story of the frantic period at the Chicago Board of Trade (CBOT) as its crosstown rival, Chicago Mercantile Exchange (CME), fought for and eventually acquired the world’s oldest futures exchange. The story is told from neophyte marketing hire Erika S. Olson, who entered the fray at this critical stage and does a nice job building up the drama of a recent event.

While the author’s lack of understanding of the industry and some of its history — even recent history — elicited a few cringes on my part, in general it helps the book as Olson comes off as an honest broker, an Alice thrust into a unique and peculiar world. That she did not have preconceived notions of some of the larger than life personalities involved in the industry helps the narrative and overall storytelling. There are some stubborn industry biases imbedded in industry veterans based on which exchange they worked at or were a member of, so it is helpful Olson comes at it with a clean slate. If she described some of the people involved based on these biases she could have lost some of the audience, but instead she presents their public personas along with how they are viewed by different camps in the industry.

One exception to this may be a slightly dismissive attitude, perhaps adopted from her new colleagues, to the membership and floor personnel of the exchange who arguably account more for its success than some exchange personnel want to credit.

She seems a little confused with the recent demutualization and membership issues and perhaps relies too much on general media sources for this background as there is a lot of boiler plate discussion of stubborn members standing in the way of progress. In one example she writes, “In retrospect many pointed to the [common clearing link] (between the CME and CBOT) as the first step towards the eventual merger… .” If she was on hand at the time, she would have known that the countdown to a merger announcement began in earnest with that event and should have acknowledged that earlier as it was a vital synergy between the CME and CBOT. In discussing an argument against the merger, she writes that futures contracts are essentially monopolies “because of Federal regulations preventing futures from being bought on one exchange and sold on another.” She attributes this to Craig Donohue, but it seems dubious as a few years earlier the Futures Industry Association argued for an interpretation of the Commodity Futures Modernization Act that would mandate such “fungibility” or at least the right to move positions to a clearinghouse of their choice (freedom to clear). She may have been a little more skeptical about the CME’s argument that they did not directly compete with the CBOT if she had been on hand a few years earlier when the exchanges vigorously argued the opposite side when the large banks pushed for fungibility and “freedom to clear” initiatives. But these miscues are minor.

As someone who reported on these events as they were going on, it was an interesting view of what was going on behind the scenes and the various machinations involved. In some cases Olson’s revelations confirmed my assumptions and in all cases it added humanity to those insiders living through it.

Olson also is a very good at getting beyond the surface of the people and personalities involved. This is not faint praise as I am fairly well acquainted with most of the main characters and Olson does a tremendous job in bringing these characters to life.

The book includes an interesting and detailed background on Intercontinental Exchange (ICE) founder Jeff Sprecher. She also does some solid research on some of the less obvious, yet very significant, players involved like Caledonia Investment’s Will Vicars.

Her description of the last few days of negotiations following Caledonia’s public rejection was compelling¸ fun and even suspenseful despite knowing the outcome.

As noted above, Olson did a nice job describing some of the characters and rivalries within the small world of Chicago’s futures industry without taking sides, which makes her evolution in the story from observer to stakeholder natural and compelling. By the end she is not this wide eyed neophyte in a foreign world, but someone who perhaps was late to a great party, regretted not getting there sooner and was sad to see it end.

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