The New Yorker slated to become the next chairman of the Futures Industry Association has found another reason why Chicago’s exchanges need to make a common-clearing deal within the next few weeks.
Any additional delay would push clearing systems to the back burner as trading firms focus on computer issues related to the “millennium bug,” said Ronald M. Hersch, director of futures at Bear, Stearns & Co.
“Unless you get started soon . . . you’re running into that whole mystery surrounding the year 2000,” said the 50-year-old veteran of the non-ferrous-metals markets.
Hersch has been nominated to head the industry trade group, replacing Laurence Mollner, who, in turn, is filling the remaining term of John Sievwright. Hersch’s election, at the industry’s Boca Raton, Fla., conference in three weeks, is virtually assured, sources said.
Common clearing, however, is anything but assured. Negotiations to combine the separate trade-clearing organizations of Chicago’s exchanges have lost some steam in the last three months. Differences remain over governance and the introduction of competing products.
Meanwhile, trading firms such as Hersch’s continue pushing to unify the systems for guaranteeing trades, saying it’s an essential cost-saving and efficiency step. “Any savings you can get with standardization is going to be important,” said Hersch, who also serves as a Chicago Board of Trade director.
Just kidding: So how do you say “Project A” in German?
Just days after Board of Trade Chairman Patrick Arbor told his members that the all-electronic Deutsche Borse in Frankfurt was bent on “world domination,” he was jetting to, of all places, Frankfurt.
Arbor, along with CBOT President Tom Donovan and Executive Vice President Fred Grede, were investigating ways to expand distribution of exchange products, sources said.
That could mean linking the Board of Trade’s Project A computer-trading system with the German exchange’s Eurex joint venture, which is aiming to unite all regional trading in Europe on one screen.
The meeting comes a few months after the demise of an open-outcry linkage with the London International Financial Futures Exchange.
Plan for planning: In one of his first steps as chairman, M. Scott Gordon of the Chicago Mercantile Exchange is shaking up strategic planning.
The board committee responsible for long-term goals is being reorganized with director James Oliff as its chairman. It will draw on a group of subcommittees, not necessarily composed of directors, each specializing in a specific topic such as governance or product development, sources said.
While some critics describe the exchange’s strategic planning effort of the past few years as a failure, Gordon maintained his customary polite demeanor, saying only, “We need to take a fresh look.”
Counterproductive? The Commodity Futures Trading Commission and Securities and Exchange Commission could be girding for another jurisdiction battle.
The issue is a proposed SEC rule that would ease over-the-counter derivatives trading for brokerages.
The CFTC, which in the past has ducked the opportunity to regulate swaps or other booming OTC products, now worries the SEC initiative could create regulatory gaps and conflicts.
“It’s the back door into eroding the CFTC’s jurisdiction,” said attorney Scott Early of Chicago’s Foley & Lardner, an expert in derivatives and securities law.
“The securities industry wants no ambiguity about answering to the CFTC. They want to answer to the SEC.”
In a Feb. 26 letter to the SEC, the CFTC asked the rival agency “to limit its regulatory initiatives in this area to those instruments over which it has statutory authority, and to work with the CFTC to craft a coordinated and comprehensive approach to the OTC market that avoids duplicative, inconsistent regulation.”
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