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CBOT links with Eurex
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June 24, 1999: 8:37 p.m. ET
Chicago Board of Trade reverses previous vote and goes for deal by 6-to-1
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NEW YORK (CNNfn) - The Chicago Board of Trade voted by a nearly 6-to-1 margin Thursday to proceed with an alliance with Eurex, Europe's electronic futures exchange, five months after initially voting down the deal.
CBOT's members had narrowly rejected a similar alliance in January. The members had been reluctant to stray from the board's 151-year-old tradition of open outcry, which lets traders yell and gesture to set the prices for everything from corn to U.S. Treasury bonds.
"This alliance will secure our global leadership position," said CBOT chairman David P. Brennan in a statement, "strengthen our world-class trading system for our open outcry and electronic markets, and bring global business opportunities to our members."
CBOT member approval of the planned linkup with Eurex, which earlier this year surpassed the Chicago exchange as world leader in futures trading volume, was considered a foregone conclusion after Brennan threw his weight behind the alliance.
Anti-alliance platform
Brennan had gotten elected as chairman in part, on an anti-alliance platform, which helped him edge out incumbent Patrick Arbor, a vocal supporter of the deal. But Brennan reversed his position in the spring after a power struggle within the leadership ranks left his position weakened.
At the heart of the agreement are plans for electronic trading of CBOT products to migrate to the Eurex computer platform and the retirement of CBOT's Project A system. The linkup brings CBOT products, including the bellwether U.S. Treasury bond contract, and Eurex products together on the same screen.
Brennan said a due diligence examination showed CBOT would not benefit financially from upgrading its Project A system rather than adopting the Eurex platform.
"We spent four months investigating how much it would cost to do it ourselves and it was $48 million," Brennan said in an interview on the eve of the CBOT ballot.
He said the amount was similar to what it will now cost to augment the Eurex system to accommodate CBOT products.
An entry into Europe
The CBOT also chose Eurex as a partner because it will give Chicago an entry into Europe, Brennan said. He noted 70 CBOT members currently use, or have applied for, Eurex screens.
The CBOT is committed to both electronic trading and electronic order entry, the CBOT chairman said.
"It's a technology platform that allows us to split the cost," Brennan said. "We are going to spend $50 million in the next 18 months to integrate our systems to the floor."
The $50 million is on top of $18 million the CBOT spent last year on Eurex, bringing the total cost for the alliance closer to $70 million, Brennan said.
At first, only CBOT members will have access to CBOT products that will trade on the Eurex system side-by-side with pit trading, Brennan said. But he also said the CBOT is reviewing whether to open access on Eurex to non-CBOT members.
"We have not opened up the access yet, but we are going to address the question. We're looking at it right now," Brennan said.
--with staff and wire reports.
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