CHICAGO (HedgeWorld.com)–Ending a 78-year-long relationship with the Board of Trade Clearing Corp., the Chicago Board of Trade announced April 16 that it will hereafter clear all its trades through its cross-town rival, the Chicago Mercantile Exchange, effective Jan. 2, 2004.
The chairman of the Commodity Futures Trading Commission, James E. Newsome, said in a statement that he had discussed this move “with the parties involved and my initial impression is that this is a business decision and another step in an evolving process to … create greater market efficiencies.”
This step leaves the BOTCC in the lurch because more than 80% of its business has been coming from the CBOT. In anticipation of this much-rumored rift, Standard & Poor’s Corp. recently put the BOTCC’s credit rating of AAA on a “CreditWatch with negative implications.”
But BOTCC is not without recourse. In a statement issued at the time of S&P’s caution, it said that it ‘has and will continue to respond to changing market conditions.” After that rift became official, a spokeswoman for the BOTCC said that it regrets the CBOT’s decision, but it plans to continue providing clearing members and exchange customers with the highest quality, cost-effective clearing and processing services.
It has been in talks with Eurex, the world’s largest derivatives exchange, headquartered in Frankfurt, Germany. Eurex plans to open a U.S.-registered derivatives exchange and announced the appointment of Michael G. McErlean to head such an operation from Chicago. That would put Eurex in direct competition with BOTCC.
BOTCC’s talks with Eurex were one of the sources of friction between BOTCC and CBOT that have led to this split and the new CBOT/CME announcement. CBOT’s first plan seems to have been to acquire BOTCC. It sent the clearing corporation a letter dated March 31, setting out the terms it would be prepared to offer. That letter requested a yes or no answer by April 7, which was not forthcoming.
Instead, Dennis Dutterer, the BOTCC president, reportedly replied in a brief note that it was impossible for the BOTCC to evaluate the CBOT’s terms so quickly. Some CBOT members apparently thought the tone of the reply was unnecessarily brusque, but Mr. Dutterer’s career exemplifies the long and close ties between the two organizations. He was the interim president and chief executive of the CBOT from April 2000 until January 2001. He has led the BOTCC both before that interim and since Previous HedgeWorld Story.
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