A new study critical of the Board of Trade Clearing Corp. is prompting a far-reaching review of systems and services, sources said Friday.
The draft report by Andersen Consulting targets the BOTCC, an independent company that matches, clears and guarantees every transaction at the Chicago Board of Trade, its sole customer.
The Clearing Corp. can’t meet the strategic business needs of the exchange because of inflexible systems, the draft report said. Its staff lacks expert personnel, its technical plans are ill-defined and its efforts to build a new bookkeeping system for member firms may represent a conflict of interest, the report said.
Fallout from the report, which Board of Trade directors received at a meeting on Tuesday, could lead the BOTCC to give up at least part of its plan to build a new clearing system on its own. Instead, it may buy all or some major components from outside vendors.
“We’re going to do a very serious `buy’ analysis,” said BOTCC Chairman Christopher Hehmeyer. He also promised to study the bookkeeping venture: “We’re taking a good hard look at it because of the report.”
The Board of Trade, for its part, is encouraging the Clearing Corp. to back off the plan for building a new system. “They’re a long way away,” said Board of Trade Chairman Patrick Arbor. “They’d be better off trying to buy a system.”
The bookkeeping venture should probably go, too, Arbor said, though he conceded his trading firm is one of its handful of customers. “It’s taking resources and management time when we need a clearing system for new, exotic products.”
Hehmeyer also cited what he considers good news in the Andersen study, saying it confirms that BOTCC’s present systems are “very solid,” “safe” and “cost-effective.” Hehmeyer and the BOTCC board are slated to discuss the report with Board of Trade directors at a Sept. 16 meeting.
In the draft report, the current systems are described as “adequate.” But recent new-product launches have exposed major flaws.
The Board of Trade’s linkage with the London International Financial Futures Exchange, for instance, “impacted 300 programs and required 12 man-years of effort,” the report said. “Limited flexibility of BOTCC’s existing systems required extensive changes to support recent product initiatives.”
The report, commissioned by the Board of Trade this spring, comes in the midst of prolonged negotiations over unifying the incompatible clearing systems at the Board of Trade and Chicago Mercantile Exchange.
That move would reduce costs for member firms, but differences remain over plans for common clearing. It’s uncertain whether the Andersen report will move talks along.
