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.S.fixed-income markets into a single trading platform.Theannouncement which sent shock waves through our Chicago markets ini-tiated a deluge of new  me-too would-be electronic competitors.By July,the Financial Times reported that Cantor Fitzgerald had made good on itspromise with the launch of  the first global electronic trading platform forinternational bonds. 1Going after Chicago s markets thus became the newest fad in globalfinance.Almost immediately, the creation of BrokerTec Global was an-nounced.It represented a mega-attack on our markets by none other thanour principal customers, the world s largest banks.The new enterprise,composed of Citigroup, Credit Suisse First Boston, Deutsche Bank, Gold-man Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley DeanWitter, would set up a new interdealer structure to transform the annual51P1: OTA/XYZ P2: ABCc06 JWBT139-Melamed June 25, 2009 13:6 Printer Name: Courier Westford52 Battling the Tyranny of the Status Quomultitrillion-dollar trade in U.S.Treasuries, Euro-denominated debt, andtheir own derivatives into a global electronic bond trading system.OnlyJ.P.Morgan was missing from the megabanker consortium because it haddecided earlier to create its own rival electronic bond broking system calledEuro MTS, based on the Italian government bond trading system.MTS actu-ally became the first to launch an electronic platform for Euro-denominatedgovernment bonds.Not much later, Intercapital Plc., which had become theworld s largest money broker by merging with Garban Plc., held talks withBrokerTec to join its venture.Intercapital Plc.subsequently announced anew venture with Bloomberg, the global information vendor, for an ordermatching service for cash and derivative securities.At about the same time,the American National Association of Securities Dealers (NASD) was vyingto tie up with top investment firms to set up an electronic futures tradingsystem.Even Reuters got into the act by considering an electronic bondtrading through its own Instinet platform.The Chicago Board of Trade, considered highly vulnerable for its lack ofan electronic system and its passionate commitment to open outcry, was theinitial target, its flagship U.S.Treasury bond and note futures contracts seenas a most lucrative prize.Stunned, the CBOT at first reacted by seeking analliance with BrokerTec itself.It thought that such a compact would allowthe CBOT to share the system for trading bond futures next to the under-lying cash market.That idea was aborted quickly when BrokerTec begantalking with LIFFE for the use of its new electronic system, LiffeConnect.Such an arrangement would transfer the cash and futures markets onto onecommon trading platform with the potential of clearing the trades througha common clearing house, the London Clearing House (LCH).Arguably thiscombination would offer market participants savings of billions of dollarsin margin and settlement costs.It was a frightening competitive prospect.Although the CBOT s treasury complex was the initial target, it wasn tdifficult to conclude that the Eurodollar contract of the Chicago Mercan-tile Exchange, with its unparalleled volume and liquidity, was the ultimategrand prize.Whoever owned Eurodollar futures owned the interest ratemarket and arguably the future of futures.Indeed, the Electronic BrokingServices (EBS), a potentially serious competitor that provided electronicforeign exchange dealing services, was considering creating an electronicforward-rate-agreement (FRA) market, a cash market substitute for the Eu-rodollar product.There seemed to be no end to potential competitors.Whilethe CME possessed an electronic platform, our competitors were aware thatCME rules did not allow existing floor-based contracts to be electronicallytraded during regular trading hours.The E-Mini was a singular exception tothe rule because it was defined as a new instrument.Aside from this issue,Globex was technologically incapable of handling the humongous volumegenerated by Eurodollars.P1: OTA/XYZ P2: ABCc06 JWBT139-Melamed June 25, 2009 13:6 Printer Name: Courier WestfordGlobal Competition 53And there was still another problem.American futures exchanges, an-chored as they were in a not-for-profit membership structure, did not havethe agility or capital to compete against the formidable global competitorsmounting the attack.This brought into focus the idea of demutualization, aprocess of converting a not-for-profit membership organization into a for-profit corporate structure.Richard Sandor, an esteemed market observerwho was instrumental in developing financial contracts at the CBOT andwho launched Chicago s and the European Climate Exchanges, summedit up succinctly:  Mutual forms of ownership are not a twenty-first centuryway of doing business.Speed and flexibility are business assets, and mutualshave neither. 2 The New York Stock Exchange and the Nasdaq Stock Ex-change were talking about demutualization.So were the CBOT and CBOE.So was almost everyone.The NASD, parent of the Nasdaq stock market, re-portedly said its board had approved plans that could involve selling sharesin its exchange to participant brokers and eventually to the public.3 In someplaces it had already happened: The Stockholm Stock Exchange became thefirst stock exchange to convert, and the Australian Stock Exchange was aclose second.Steven Strahler of Crain s Chicago Business summed it up:The industry s buzzword is demutualization.Institutions from the NYSEon down are studying it, converting from member-driven organizationsinto less democratic but potentially more competitive and technologicallyadvanced corporations that could go public and list their own stock.Theestablished exchanges are being forced to react to rival upstarts that arebusting open what for decades has been a cozy, members-only club.Unfortunately, it may already be too late for many existing exchanges.4To say that the American futures markets organizational structure wascumbersome does not begin to explain its unwieldy legal, regulatory, andpolitical makeup.As I told Reuters News,  The problem we face in ourindustry is that as a membership organization, we have to live within thestructure of politics that requires decisions to go through a very tortuousprocess. 5 That said a mouthful.At the CME there were 39 members of theboard of directors who met twice a month; there were over 200 commit-tees; and there were over 3,000 members aligned in three divisions witheveryone having a personal say-so and in some matters even a veto right.Additionally, since this was before congressional adoption of the FuturesModernization Act (FMA) of 2000, there were also cumbersome procedu-ral regulatory requirements by the Commodity Futures Trading Commission(CFTC) [ Pobierz całość w formacie PDF ]