Chicago Mercantile Exchange seeks IPO this year

Discussion in 'Index Futures' started by just21, May 2, 2002.

  1. just21


    By Mary Chung and Vincent Boland in New York
    Published: May 1 2002 22:45 | Last Updated: May 1 2002 22:47

    The Chicago Mercantile Exchange, the world's second largest futures market, is seeking to complete its initial public offering this year in spite of a dramatic boardroom reshuffle that ousted its chairman last week.

    If it gets a stock market listing before the end of the year, the CME would be the first US exchange to sell its shares to the public.

    There were concerns that the CME board's decision to remove Scott Gordon as chairman and replace him with Terrence Duffy would disrupt the IPO plan. But people close to the CME said on Wednesday the appointment of Mr Duffy, a veteran trader and former vice-chairman, would have little impact on its strategic direction.

    "We have a unique and strong board. The [chairman's] face may be different but the direction remains the same. It's very political here at the Merc but this is how we do it in Chicago," a source familiar with the CME's thinking said.

    The CME has an incentive to complete its IPO before December 31 because that is when the deadline for transfer restrictions - or the trading of its Class A shares - expire. After that deadline, stockholders would be allowed to sell a portion of their shares and the CME would be forced to take a new vote to extend the transfer restriction.

    Valuing the CME could prove tricky. Its value would be based on the price of its trading seats. According to the most recent figures, the seat value could be about $895m. In addition its Class A shares are understood to be worth an additional $480m.

    Combining the two would value the CME at about $1.4bn. However, the exchange believes it is worth considerably more.

    The closest to a precedent for valuing the world's main futures markets is last year's purchase of the Liffe derivatives exchange in London by Euronext. The deal last October was the first acquisition of one leading marketplace by another.

    The French operator paid £555m ($813m) for the London International Financial Futures and Options Exchange, which is Europe's number two futures market measured by the volume of contracts traded, and its number one exchange measured by the value of those contracts.

    If the CME floats, it will be following a pattern begun outside the US of securities exchanges seeking stock market listings to raise cash and to have shares to use as an acquisition currency. Exchanges in Hong Kong, Australia, London, Frankfurt and Paris have all listed in the past two years.

    A float could also persuade other US securities exchanges to choose that route.
  2. Sinefit


    You're the only one worrying. I posted somewhere about this
    and no response.

    1) It's risk transfer, but counter-party risk is still within the world's closed economy. Remember that it is cashing-in on
    "too big to fail" - so now they are "world insured".

    2) This is the next trend after the invention of derivatives in 71.

    3) It's like the Fed going public, cannot imagine when things stop
    or actually things do not have natural limits - the number
    of nesting levels permitted. How about NYSE listing itself, I don't
    know the significance, it's too abstract.
  3. just21


    Patent dispute hits exchange as IPO nears: CME and others face legal battle, write Lauren Foster and Adrienne Roberts:
    Financial Times; May 7, 2002
    As the Chicago Mercantile Exchange, the largest US futures market, edges towards becoming a public company later this year, it faces a legal battle that threatens an important aspect of its business: electronic futures trading.

    The battle centres on a patent that few people had heard of before last year, and involves the two other large futures exchanges: the Chicago Board of Trade and the New York Mercantile Exchange.

    In two separate lawsuits, the CBOT, the CME and Nymex are accused by eSpeed, Cantor Fitzgerald's electronic platform, of violating the Wagner Patent, which deals with the matching of bids and offers of futures contracts on an electronic platform.

    Earlier this year, in its 2001 annual report filed with the Securities and Exchange Commission, the CME warned investors about the lawsuit, saying the litigation could affect its "ability to offer electronic trading in the future".

    If America's three largest derivatives exchanges lose the suits, electronic futures trading in the US could become a lot more expensive. What's more, the exchanges could face hundreds of millions of dollars in licensing fees to eSpeed, the patent's current owner.

    The patent, which was bought last year by eSpeed, is named after Susan Wagner, a former executive director of the Commodity Futures Trading Commission, who devised it.

    ESpeed bought the patent after Cantor Fitzgerald was named as a co-defendant in a suit filed by the patent's then owner, Electronic Trading Systems.

    After buying the patent, eSpeed filed an amended complaint against its erstwhile co-defendants. This sought higher damages, attorneys' fees and injunctions.

    On the face of it, the patent appears to cover automated futures trading systems that include, but are not limited to, energy futures, interest rate futures, single stock futures and equity index futures.

    If eSpeed is successful, the three exchanges may have to pay patent royalty fees as well as fees for each contract traded. Moreover, a ruling in favour of eSpeed could open the door to similar suits against other exchanges.

    ESpeed recently signed a five-year contract with the electronic marketplace InterContinentalExchange (Ice), the parent of London's International Petroleum Exchange. Under the deal, Ice agreed to pay eSpeed at least Dollars 2m a year in royalties and at least 10 cents per contract per side, or at least 20 cents per round-trip contract, whichever is higher.

    If such a deal were applied to the CME, there could be large sums at stake. Last year, 81.9m contracts were traded electronically on the CME, accounting for 19.9 per cent of total trading volume.

    Euronext-Paris, the licenser of the CME's trading software, has also been drawn into the dispute. The two exchanges decided this year to split the costs of the defence.

    While eSpeed said it had no plans to broaden the scope of its lawsuits, Howard Lutnick, chief executive, said this could not be ruled out in the future. For the time being, eSpeed is exploring its licensing options. "Certainly, we are talking to other exchanges about working with the eSpeed technology or licensing the patent," Mr Lutnick said.

    There is a history of tussles between Mr Lutnick and Chicago. In the late 1990s, Cantor set up an electronic futures exchange, aiming to trade fixed-income derivatives - a direct threat to part of the CBOT's core business.

    The CBOT unveiled plans to move into the cash trading of government securities, through an entity called Chicago Board Brokerage. This could have poached some of Cantor's business.

    CBB ran into legal problems, however, when Cantor claimed that two of its limited partners - Iris Cantor and Rod Fisher - had breached their partnership agreements by selling Cantor-related electronic trading technology to CBB. After months of courtroom wrangling, Cantor and CBB settled. The CBOT's plan for cash trading of government securities fizzled out, and while Cantor's electronic futures trading platform was launched, it attracted minimal business.

    This time, the exchanges have vowed to fight the lawsuits. But the preliminary rulings suggest it will be a tough battle.

    Both the CBOT and the CME declined to comment on the case but the Nymex has said it is confident it can win. The case against the CBOT and the CME is scheduled to go to trial on September 9. The case against the Nymex will be heard in New York early next year. Additional reporting by Nikki Tait in London
  4. For the love of God! I retrieved the summary (which appears below) from the USPTO web site. If they can get away with this, perhaps I should file an application for my "new" invention; a hollowed-out, conically or cylindrically shaped device, made from ceramic, plastic, metal, or other materials, which incorporates a semicircular handle on the side, and is designed primarily for the containment of liquids, both hot and cold, the contents of which are meant to be consumed by human beings or otherwise.


    The present invention relates to a computerized open outcry trading exchange system for transacting sales of futures commodity contracts in varying volumes or lot sizes by members of the trading system as principals or agents for others wherein bids to purchase or offers to sell a particular commodity are made by said principals or agents through remote terminals, said system comprising a trading system for receiving buyer bids and seller offers on a particular commodity contract from said remote terminals and automatically completing a transaction of matching bids and offers, a clearing system for establishing requirements and regulations to be observed on said buy and sell transactions, means coupling said clearing system to said trading system for determining the validity of each transaction by comparing said transaction to said requirements and regulations, a compliance system for establishing predetermined criteria necessary to detect illegal trade practices or trade patterns which would adversely affect said commodity market and means coupling said compliance system to said trading system and said clearance system for automatically comparing said transaction to said predetermined criteria thereby enabling detection of illegal trade practices and trade patterns which would adversely affect said commodity market.

    The invention also relates to a method for automated futures trading in which the transaction of a sale of a particular futures commodity in varying volumes or lot sizes by members of a futures trading exchange as principals or agents for others wherein bids to purchase or offers to sell are made by said principals or agents for said particular commodity, said method comprising the steps of establishing a trading system for receiving at a central processor buyer bids and seller offers on a particular commodity from remote terminals, storing in said central processor said trade orders in the form of time, price and quantity of each of said received bids and offers, comparing said received bids and offers and matching equal bids and offers on a first come, first served basis according to the time of receiving said bids and offers, forming a clearing system for establishing buy and sell constraints on each member of said exchange, coupling said clearing system to said trading system for approving execution of a transaction only when said transaction falls within said predetermined constraints, executing the buy and sell transaction of said commodity having its offer and bid matched and approved by said clearing system forming a compliance system for establishing predetermined criteria necessary to detect illegal trade practices, coupling said compliance system to said trading system and said clearing system for detecting any illegal trade practices as indicated by said predetermined criteria, and confirming the execution of the transaction immediately to both buyer and seller whose bid and offer is matched.
  5. bone

    bone ET Sponsor

    Two Comments from a LONG TIME electronic futures trader:

    1) The patent is too broad.

  6. bone

    bone ET Sponsor

    2) Reuters, the original Globex, and Project-A have all had various electronic order-matching engines in existence since 1991.
    DTB has been around since about 1993.

    3) CBOT's current electronic platform was developed by Eurex.

    4) When the Merc is serious about making money, and when the timing is right (after they go public and yank shares away from the floor membership), they will trade the EuroDollar during the day on Globex.

    5) Eurex made $100M last year in net profit. The CBOT was crowing and doing victory laps about making $25M.
  7. some IPO performer in the aftermarket

    closed at another all time high today

    $69.40 ( of course I do not have any in my portfolio

    as I am a day trader and scalper and arb type of guy

  8. Its funny to read some of the previous threads concerning the ipo of the CME. Sometimes it pays not to be a daytrader.

    Current price: 478
  9. lwlee


    I think even as a daytrader, you might have an IRA account that you hold long term stocks. That's where you can hold stocks like CME.

    CME, NYX and NDAQ. Man, that would have been one helluva of a portfolio.