CHICAGO (AP) — Members of the Chicago Mercantile Exchange have voted overwhelmingly to transform the institution into a for-profit, shareholder-owned corporation in a bid to secure its future in the fast-changing derivatives trading world.
The exchange's owners will change from seatholders to stockholders in a private corporation, with a future public stock offering also a possibility.
In a statement, CME Chairman Scott Gordon said Tuesday's vote "brings the CME to the most significant turning point in more than 100 years of history." The decision, he said, "affirms the innovative spirit and visionary decision-making that are the hallmarks of this exchange."
The weighted vote — based on a member's level of trading privileges — was 98 percent in favor of the proposal, the CME said.
The Securities and Exchange Commission has already signed off on the so-called "demutualization." The Internal Revenue Service still must rule on tax issues, and the Commodities Futures Trading Commission must approve the exchange's new rules.
The Merc plans to issue 25.8 million shares of Class A stock to its approximately 3,000 members. After six months, 25 percent of the stock could be sold as common stock. After 15 months, all restrictions on stock sales would be lifted.
The vote also changes the Merc's management structure.
Currently, members have a final say on major decisions and are involved in daily operations. The new structure requires the members to cede that control to a senior staff.
To become a member, a seat had to be purchased on the exchange. In the most recent sale of a full seat, which allows its owner to trade throughout the exchange, the buyer paid $750,000 on May 30.
The restructuring calls for 5,000 Class B shares to be issued to represent the trading rights of traditional exchange seats. These shares will be traded much like memberships, which are now bought and sold. And they would give the holders veto power over any proposal to remove a futures contract from the trading floor.
As a result of the vote, open outcry — in which traders standing in pits set prices for everything from frozen pork bellies to Treasury bond futures traded at the Merc — may be headed for extinction. The 150-year-old tradition, is being challenged by electronic trading, particularly on exchanges abroad.
Steven Greenberg, president of Alaron Trading Corp., a brokerage, said Tuesday open outcry will be available at the Merc. But he says eventually, it will disappear.
"Open outcry is not what financial institutions want," he said. "I'm sure it is coming to an end. Not overnight, but as fast as the customers want it to happen."
The Merc and the Chicago Board of Trade, longtime leaders in futures trading, were both surpassed in volume last year by the all-electronic, Swiss-German Eurex exchange. More recently, both have been overtaken in trading volume by the Chicago Board of Options Exchange, the nation's leading market for stock options.
The Board of Trade and the CBOE are now in merger talks.
The Chicago Merc is exploring new partnerships with other exchanges and technology and information companies under the plan, Merc chairman Scott Gordon said. It already has formed two significant alliances this year — most notably the Globex alliance of five international exchanges, which allows for a common trading platform.