End of an era as CBOT merges with CME
CHICAGO (Reuters) - Members of the Chicago Board of Trade prepared themselves for a bittersweet ending to the world's oldest futures exchange on Tuesday as they got ready to accept a $12 billion takeover by their old crosstown rival, the Chicago Mercantile Exchange.
"This is basically a business decision but the emotion bleeds into it," said Bob Otter, member and shareholder who began his trading career in the CBOT soybean pit the day after Jimmy Carter was elected president in 1976.
A bidding war that began in March between upstart energy bourse IntercontinentalExchange (ICE.N) and the top U.S. futures mart CME CME.N escalated the past month, pushing the CME to buy the CBOT BOT.N. Preliminary results released late Monday indicate that shareholders overwhelming voted for the deal. Final results are due this week after they are certified.
The purchase price made multimillionaires of long-time grain traders, with business roots dating back to the founding fathers of the 159-year-old exchange. Still, some voiced regrets.
"What isn't showing in the balance sheets or the proxy statements is what the Board of Trade means to a lot of us. It's really a bitter-sweet situation," said James Cashman, a Board of Trade director and a member for 30 years.
He reminisced what it meant for him and his family to be connected to an institution founded in 1848 as the first centralized grains market where Midwestern farmers traveled to sell their crops. That was a step that led to the creation of modern futures markets, places where speculators trade with grain companies in a complex web to offset price risk.
Like many CBOT grain traders, members of the Cashman family love the chaotic pits, the adrenaline rush of risking thousands or sometimes millions of dollars at a pop as they stand shoulder-to-shoulder jostling for the best price.
Members of the Cashman family were in the grain pits during the Bay of Pigs crisis with Cuba in 1961, the 1980 Russian grain embargo and the 1986 explosion of the Chernobyl nuclear reactor in Ukraine, a key grain exporter.
"It's a real special relationship that's hard to explain," said Cashman, who was in the wheat pit when the Chernobyl incident occurred.
RETIREMENT IN THE OFFING
Many long-time floor traders said they see the CME acquisition as a time to throw in the trading towel. The viability of trading in the pits is fading amid the surge of electronic transactions, making the merger even easier to swallow.
In the end it was the "greatest trade in the history of Chicago," said Charles Carey, CBOT chairman and a third generation Board of Trade member.
Only seven years ago, the CBOT was the No. 1 U.S. futures exchange. The Merc, known for trading livestock and food commodities, embraced financial futures in 1972. It eventually pushed past the CBOT in trading volume by 2001, making it the largest U.S. derivatives market.
The Merc's roots can be traced to the Board of Trade. Some disgruntled CBOT traders spun off a new exchange in 1874 that eventually evolved into the Chicago Butter and Egg Board in 1898, which later became the Chicago Mercantile Exchange in 1919.
Now, the two will reunite to form the world's largest derivatives mart. Continued...
