Chicago Board of Trade Studying Merger

Officials of the Chicago Board of Trade said Monday that they are studying the possibility of merging with their cross-town rival, the Chicago Mercantile Exchange.

A CBOT spokesman, confirming a report in Crain’s Chicago Business, a weekly business newspaper, said a task force study completed last month suggests that a CBOT-CME merger could boost revenue without affecting trading volume, which declined last year at both exchanges.

A CME spokesman said there have been no preliminary conversations between the two exchanges, however.

CME Chairman Jack Sandner “had no idea a strategic plan was underway or that the CBOT was focusing on a merger as a possible way of saving money until last week,” he said.

The task force that made the suggestion had been set up to explore ways to increase revenue that did not rely on greater volume. The exchange plans to set up another task force in the next two months to study a merger, the CBOT spokesman said.

Although CBOT Chairman Patrick Arbor “is in favor of the proposal, he acknowledges it is a long-term project,” the CBOT spokesman said.

The task force’s recommendations came at a December CBOT board meeting.

During 1995, both exchanges experienced lower trading volumes, reduced revenue and cooling the rivalry between the exchanges.

Volume fell 4% at the CBOT and 29% at the CME.

“The task force considered the merger of the Chicago exchanges, primarily the CBOT and CME, as an offensive measure in the event of a slowdown in volume,” the task force says in its study.

“This is not a new idea,” the CBOT spokesman said. “People have looked at a lot of different ideas to reduce costs.”

Industry sources close to the CME said that body would be reluctant to enter any merger deal now, partly because the CBOT is in the middle of $181-million building project.

The task force estimates that a CBOT-CME merger would save the industry $32.7 million. It would cut CBOT and CME salary and benefit costs by 20%, operating costs by 20% and professional services costs by 10%.

A merger of the two exchanges has been discussed on and off for the last several years.

Plans for a joint clearing system between the CME and the Board of Trade Clearing Corp., the CBOT’s independent clearing house, disintegrated in ’94 after several years of negotiations.

Leo Melamed, president of Sakura Dellsher and CME chairman emeritus, said he believes that a merger would be constructive but that the exchanges should take small steps.

“I really believe this is so difficult and grandiose a concept that you should get there in stages,” Melamed said.

Melamed had proposed such a merger as early as 1979, when he was CME chairman.

Les Rosenthal, managing partner of Rosenthal Collins Group and a former CBOT chairman, also said a merger would be more doable if completed in incremental stages.

“The proposal should work on smaller items like common banking and clearing,” Rosenthal said. “The cultures are too different.”