This town’s exchanges aren’t ready for reform-minded chief executives.
David Vitale bowed out Tuesday at the Chicago Board of Trade. Just 18 months ago, he took on the job of rescuing the exchange from its more narrow-minded members. But narrow-mindedness proved more popular than Vitale, so he’s out.
Jim McNulty still hangs on as chief executive of the Chicago Mercantile Exchange. At least, that’s his title.
More Top Picks Best Protein Powder Oath Nutrition Clear Whey Isolate Review
In truth, everyone knows one-time futures industry visionary Leo Melamed is running the Merc. Melamed hasn’t had a new vision for a long time now, which makes him just what the Merc’s membership wants.
McNulty they don’t want. That’s why the exchange’s real power brokers in early October created a new “office of the chief executive.” The official explanation: so McNulty could share duties with someone who’s “complementary.”
That’s complementary as in black complementing white. If McNulty thinks something is a good idea, his new CEO office partner is supposed to say it’s bad. Unless, of course, McNulty concludes it’s time to move on.
Now that will be a good idea. In the minds of the Merc’s anti-McNulty crowd, anyway.
The rap among members against Vitale and McNulty is that they are bad communicators. But it’s not true. They’re good communicators. It’s the message they’re communicating that Chicago’s traders don’t like.
The new CEOs both were brought in to push for change. Not incremental change. Transformational change: public stock offerings, adapting to electronic trading, exploring mergers and partnerships, considering new ways of clearing trades.
“It was clear that the exchange was committed to change,” McNulty said the week after he started work. “I am an agent of change.”
Not so fast, agent McNulty.
Change sounded good a few years ago when volume was down and electronic trading looked like a clear and present danger.
Within a year of each other, both exchanges hired professional managers. Outsiders, not futures traders. Big-think types with big paychecks who could dress up well and lead the charge toward initial stock offerings and the world of corporate finance.
Then something unexpected happened: Trading volume came back.
The traders looked at the volume figures and figured their old course was correct. They had panicked. The outsiders and their radical ideas about mergers, modernization and openness no longer looked so good.
Never mind that trading surged mostly on computerized trading systems, not in the pits. Never mind that the jump arose from market factors such as a dead stock market, exchange-rate changes, currency fluctuations and economic uncertainty.
The trading floor had all the answers again. And even if the answers were a bit murky, one truth was clear: Floor traders still had all the power. And they chose to exercise it.
At the Board of Trade, they changed the very structure of the public stock offering. Under the plan, which Vitale couldn’t stomach, a share of CBOT stock will represent both an equity interest in the exchange and the right to trade there. This is a negative for anyone looking at the CBOT purely as an investment. But it’s a boon to floor traders, who now will retain control over the exchange’s future.
The Merc’s modernization process is further along. McNulty’s recent demotion seems to be mainly because members resent his rich contract, which last year paid him $2 million. A $37 million lump option grant really grates, too. And McNulty further riled traders by briefly operating under the mistaken notion that he was supposed to be in charge.
Vitale has taken a lesson from his experience. “Change is going to come slowly,” he told me. “Finding the right pace for change is very tricky to do at Chicago’s exchanges.”
I disagree. Change will come quickly to the Chicago markets. Electronic trading is crowding out pit-style trading. Customers are looking for new ways to clear trades. If the Chicago exchanges aren’t prepared to consider mergers or partnerships, then they’ll wind up further on the sidelines.
Change will come quickly. Whether Chicago’s exchanges will be ready for it is a different matter.