CHICAGO May 20 CME Group Inc, the
world's largest futures market operator, aims to win shareholder
approval on Wednesday to halve the number of board members who
represent Chicago Mercantile Exchange users.
Trimming three of the six board members who represent market
users would help the company, which owns the Chicago Mercantile
Exchange and four other markets, reduce what is the largest
board among companies that make up the Standard & Poor's 500
Index. The board is set to drop to 24 directors from 29
this year, still topping the next-largest board at BlackRock Inc
by five members, according to Institutional Shareholder
Company executives are expected to face questions from
investors about the proposal at Wednesday's annual meeting in
Chicago. At least three directors, three candidates for CME's
board, and five former board members have publicly opposed the
CME, which launched its first overseas market in London last
month, argues the company's growth has eliminated the need for
six directors representing one exchange. Keeping three will
maintain "the appropriate expertise," according to the company.
If approved, the reduction will take effect next year.
"It reflects the evolution of the company away from its
member-owned roots and away from sort of the traditional
community of liquidity providers," said Craig Pirrong, a finance
professor at the University of Houston.
The directors, known as B-shareholder representatives, are
often linked with traders who built their careers in open-outcry
pits. Their influence has waned due to the rise of electronic
trading, with about 86 percent of CME's business executed
electronically, up from less than 15 percent in 2000.
Individual CME memberships, which provide discounts on
trading, became attached to "B shares" when the Chicago
Mercantile Exchange went public in 2002.
Traders say B-shareholder directors remain important because
of their deep understanding of the futures industry. Other board
members include Dennis Hastert, a former speaker of the U.S.
House of Representatives, and Dennis Chookaszian, a former CNA
Financial Corp boss.
"The board is getting rid of the wrong people" by cutting
B-shareholder representatives, said Ray Cahnman, a former
Chicago Board of Trade director who is running for CME's board.
Cahnman said that, if elected, he will push CME to buy all
the B shares and rent trading permits to increase revenue. CME
should eliminate the category for B-shareholder representatives
on the board and all candidates should compete for the same
spots, he said.
CME declined to comment on B-share purchases. Executives
have previously been cool to the idea.
Still lacking on the board will be a representative of a
high-frequency trading firm. The practice that accounted for
about 30 percent of CME's volume in the first quarter.
"It's good to have a mix of people from the outside and true
insiders who understand the business," said Jeff Carter, a
former CME director who opposes the proposal to reduce
(Editing by Matthew Lewis)