"By Mark Skertic Tribune staff reporter October 12, 2003 Like a ward boss dealing with an upstart aldermanic candidate, the Chicago Board of Trade and Chicago Mercantile Exchange are calling in favors, making promises and exerting political pressure. Their goal: to solidify their positions before the new, all-electronic U.S. exchange operated by Eurex AG moves in on Chicago's turf in U.S. futures trading. Critics claim that the CBOT and the Chicago Mercantile Exchange, through efforts here and in Washington, D.C., also are trying to derail or delay the planned Feb. 1 start of Eurex trading. Among the tactics: - Both have stepped up lobbying efforts in Washington. This week, for the second time this year, a House agriculture subcommittee will hold a hearing over concerns about unfair competition prompted by Eurex's impending arrival. - Spending by the CBOT's and Chicago Mercantile Exchange's political action committees has increased. Through August, the CBOT has increased spending 13 percent compared with all of last year. - The Chicago Board of Trade has offered a deal to shareholders of Clearing Corp., a move that could thwart Eurex's hopes of owning 15 percent of the clearinghouse. The CBOT is severing its ties with Clearing Corp., and if the Eurex deal falls apart, Clearing Corp.'s future may be uncertain. "They're politicking themselves into the ground," said Christopher Culp, a University of Chicago professor and senior fellow in financial regulation with the Competitive Enterprise Institute in Washington, D.C. "Frankly, the reputation they're getting is of people who run to Washington for help, rather than to the marketplace." The two Chicago exchanges are strong enough to survive and challenge Eurex without government help, Culp said. "Maybe they don't intend for these to be roadblocks, but it looks like they are." Critics say that concerns raised with lawmakers could slow the Eurex's application, giving the Board of Trade time to move clearing of its trades to the Mercantile Exchange and work out any problems with a new electronic trading platform. Eurex applied to the Commodity Futures Trading Commission for permission to operate a U.S. exchange in September. Under terms of the 2000 law that governs CFTC operations, an application is approved within 60 days unless the commission finds problems. For Eurex, the 60-day period would expire on Nov. 17. If it's moved off the fast track and goes through the 180-day review process, the deadline for commission action would be March 15. If no decision is made by that day, Eurex would have permission to operate. While Congress doesn't have the authority to approve or turn down Eurex's application, House leadership can send a clear signal if they believe the application process should move slower. The Board of Trade's recent efforts are not an attempt to throw up roadblocks, said Charles Carey, the CBOT's chairman. "That's what they want you to believe," he said. "We're the ones who made the bold moves, and they sat back and said we couldn't accomplish our goals. And we did it." Recent changes at the CBOT have included rewriting internal rules so it can give its board more authority, as well as opening up membership to commodity pool operators and other large investment funds. Those moves are efforts to keep large pools of cash from moving to Eurex. There also have been some key countermoves made in response to Eurex. In November, for example, the board will begin moving the clearing of its trades to the Chicago Mercantile Exchange, the nation's largest futures exchange and historically a CBOT rival. At the same time, the board will start phasing in a new electronic trading system. Trading on a computer screen, instead of on the trading floor, has experienced rapid growth. "What we have tried to gain, by this whole process over the last year, is preservation of the integrity of the marketplace," said Bernard Dan, the CBOT's chief executive. But some who make their living in LaSalle Street's financial district believe the exchange's efforts are motivated by personal concerns. "This is a move strictly to preserve the income that they have been able to glean through their monopolies," said Russell Wasendorf, chairman and CEO of Peregrine Financial Group Inc., a futures commission merchant. "This is embarrassing," Wasendorf said. "Blocking Eurex is simply going to be looked at by investors as a dirty trick. I don't think most investors will appreciate it very much." Last week, some Clearing Corp. members began contemplating an offer by the Chicago Board of Trade that guarantees shareholders in the clearinghouse that they won't lose money by turning down a deal to reorganize and sell a 15 percent share to Eurex.