Changing Times at Chicago's Exchanges
April 18, 2000 - The New York Times reports that investors searching for ways to manage risk are beginning to look beyond Chicago’s derivatives exchanges. Once considered the world’s premier safe haven for risk management, the exchanges are now struggling to maintain their stature and their business.
The latest sign of upheaval in Chicago came on Friday with the resignation of Tom Donovan, President of the Chicago Board of Trade (CBOT), after a long struggle with the Board’s chairman. In 1999, the CBOT saw trade volume drop by 20 percent and suffered the loss of its position as the world’s largest derivatives exchange.
"There has been a long-term secular drift here," explained Richard Sandor, CEO of Environmental Financial Products and the man responsible for introducing financial derivatives at the Chicago Board of Trade. "Now, the viability of the Chicago exchanges depends upon how quickly they can adapt."
While the Chicago Board of Exchange (CBOE) and The Chicago Mercantile Exchange (Merc) have fared considerably better, all three have struggled to adjust to the growth of electronic trading, the sharp rise in the over-the-counter derivatives market and overseas competition.
Both the CBOE and the Merc have launched de-mutualization plans designed to raise capital and improve the exchanges’ ability to respond rapidly to change. In fact, the CBOE reports a 70% increase over last year. However, the CBOT is laden with debt from a huge expansion of its trading floor and has responded indecisively to on-going change in the derivatives world.