Members of the Chicago Board of Trade take the first step on Wednesday toward restructuring their 152-year-old organization. The most important fact they need to focus on is this: The world will continue changing–with or without them.
Wednesday’s vote is on whether to change the state of incorporation from Illinois to Delaware. That seems innocuous enough, but it is the crucial decision for this institution. It requires a two-thirds majority and sets the stage for the later restructuring into two independent companies–the traditional open outcry CBOT and the E–for electronic trading–BOT. Members would hold shares in both.
At that point, say CBOT executives, the market would decide which trading system thrives.
In many ways, this is a step into the unknown for an institution that built its global reputation on the bold risk-taking of its members. Those members created deep, liquid markets that set the standard and were the envy of the world. But recently the CBOT has been famous more for its internal squabbling and the uncharacteristically hesitant way in which it has approached the changing nature of markets and its need to adapt to those changes.
This vote could change that. It is why, acknowledged Chairman David Brennan, “the world is watching, the market is watching.”
In an ideal world, some major controversies confronting members would be resolved to everyone’s satisfaction prior to this vote. But neither the world nor the vote will wait.
Those controversies–over how a restructuring would affect members’ rights to trade at the Chicago Board Options Exchange, and over the provision that members would be guaranteed cut-rate fees for just three years rather than forever–aren’t going to be resolved first. So CBOT members must decide whether they are going to take the leap into the unknown or are going to hunker down and hope their status quo tower at the foot of La Salle Street can survive.
Time is of the essence here. The CBOT is already behind its rival, the Chicago Mercantile Exchange, which earlier this month overwhelmingly approved its own restructuring plan.
Changing its structure would provide the CBOT–as it does the Merc–a fighting chance to compete. That’s it, although it would crack open the door for an oh-so-intriguing vision of a future in which the three–CBOT, Merc and CBOE–combine forces to show the world once again how the risk-takers in Chicago do it.
