The "MERC" and Her Market Make Great Strides
Monday, August 11, 2003SUSIE GHARIB: It has been one of the best years on record for the market. And no, we're not talking about the stock market, but the futures market. Global uncertainty has prompted many investors to manage risk with futures. And as Diane Eastabrook reports, investors who bought stock in the nation's largest futures exchange are also profiting.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: War in Iraq, SARS, and fluctuating currencies have kept the Chicago Mercantile Exchange in the money so far this year. Trading volume for the nation's largest futures exchange was up nearly 20 percent through the end of July compared to the same period last year. As a result, the Merc's stock price has more than doubled since it began trading last December. The stock's performance has been a validation of sorts for exchange leaders who fought to make the Merc the nation's first public exchange.
TERRENCE DUFFY, CHMN., CHICAGO MERCANTILE EXCHANGE: We look at our business plan and we feel that if we deliver on our business plan, our stock price will take care of itself.
EASTABROOK: Duffy says becoming a publicly-held firm has made the Merc a lot more nimble. He says when exchange was run by its members, getting new contracts approved or business strategies adopted could take months. Today it can be done in a matter of weeks. In the last year, the Merc has launched 20 new contracts and entered into a lucrative deal to clear trades for the Chicago Board of Trade.
DUFFY: That was, some would say, 30 years in the making, but technically it only took us about a month-and-a-half. Now that is a significant deal that we were able to accomplish.
EASTABROOK: Still, the Merc faces challenges. The world's largest futures exchange, German-Swiss owned Eurex, plans to start trading U.S. products that could compete with the Merc's. But analyst Joel Gomberg, whose employer, William Blair & Company, has an investment banking relationship with the Merc, doesn't think it will suffer.
JOEL GOMBERG, ANALYST, WILLIAM BLAIR & COMPANY: Participants tend to migrate where the liquidity is, and it's tough to take liquidity away from existing exchanges.
EASTABROOK: Exchange watcher John Lothian thinks more competition could actually make the Merc a better company.
JOHN LOTHIAN, EDITOR, JOHN LOTHIAN NEWSLETTER: They are taking the steps to lower their fees, extend their access. Competition in this sense so far has been very good and helped increase their volume.
EASTABROOK: The Merc can't predict future trading volume, but it's confident demand for its products will keep growing no matter what is happening around the world. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
