Board elects new head for Merc
April 25, 2002
BY DAVID ROEDER BUSINESS REPORTER
Directors of the Chicago Mercantile Exchange, the nation's biggest futures mart, elected a new leader Wednesday as floor traders reasserted control over an institution they feared was leaving them behind in a march toward electronic markets.
The 20-member board overwhelmingly elected Terrence Duffy, 43, as its chairman. Duffy, an independent broker and trader since 1981, was favored over Scott Gordon, 48, the chairman since 1998. The vote was not announced, but sources said it was 15-5.
Merc directors, some speaking on condition of anonymity, insisted the move is not a repudiation of changes in recent years, including a conversion to for-profit ownership. They said members have grown frustrated with Gordon for walking in lockstep with the Merc's senior staff and not questioning their decisions.
Sources said that in late 2001, the Merc's top staff officer, President James McNulty, proposed a $1 million annual salary for Gordon plus stock options totaling a potential $1.4 million. The board shot down the idea, and held the chairmanship to a salary of $350,000.
"That shook people up, and made us wonder just how independent Scott was,'' a Duffy supporter said.
Directors said that while the exchange will continue to push electronic trading, there's concern that equal emphasis be given to the "open outcry'' pits that remain the heart of the Merc's business.
"What nobody should lose sight of is we have a very large local base of traders. That's what continues to distinguish us from every other marketplace,'' said an active board member. He said the Merc must do more to train floor traders on electronic systems.
Another director faulted Gordon, president of Tokyo-Mitsubishi Futures (USA) Inc., for leaving members in the dark about key initiatives and never trying to rally their support. His successor gets a two-year term.
Duffy said he plans no retreat on the exchange's commitment to electronic trading or its for-profit status, an organizational switch designed to minimize the influence of membership politics. He praised Gordon's contributions to the exchange and said, "I think that I have different communication skills than Scott, and that may have been what the choice came down to.''
The leadership change comes at a time of enormous prosperity at the Merc. Volatility in interest rates has fed a boom in trading volume and revenue, with traders seeking profit or protection from the market's movements. So far in 2002, the Merc is running 30 percent ahead of its volume pace for 2001, and that was easily a record-setting year, with more than 411 million contracts traded on its systems.
All that business rolling in obscured tension among the members. Some whose livelihoods are connected to the trading floor thought the Merc was putting too much money into its Globex electronic network. Its biggest growth sector, Globex in recent months has accounted for 30 percent of the Merc's volume.
Duffy won with the support of the Merc's two most powerful political forces, Chairman Emeritus Leo Melamed and former Chairman Jack Sandner, both board members. Melamed and Sandner frequently have been at loggerheads, but also have cooperated to make the Merc one of the most innovative exchanges.
Both men insisted the support for Duffy marks no backtracking on technology or on the Merc's ultimate plans for file for an initial public stock offering. Duffy "has embraced the idea of technology and that we're moving swiftly to an electronic destiny,'' Melamed said.
Sandner commented that Duffy is "forward-thinking and sensitive to the complexities of our institution.''
In a prepared statement, Gordon congratulated Duffy. Gordon said his four years saw the development of a "sound and comprehensive strategy'' to secure the Merc's future.
The firm's lobbying voice, the Futures Industry Association, has pushed the Merc to withdraw support from the trading floor because maintaining side-by-side systems is costly. Major markets overseas have gone all-electronic.
"I think the Merc has to look to where the growth is,'' said FIA President John Damgard. "Irrespective of who the chairman is, we have issues that need to be addressed.''
In its first-quarter earnings, released Wednesday, the Merc's holding company reported higher revenues but a decline in profits, largely because of a $4.1 million set-aside for executives' stock-option grants. Gordon's critics took the report as another sign of insufficient oversight.
Chicago Mercantile Exchange Holdings Inc. said its first-quarter net income was off 14 percent to $17.1 million, compared with the same period last year. Revenue rose 10 percent to $92.2 million.
At its meeting, the board elected other officers for one-year terms. They were James Oliff as vice chairman, William Shepard as second vice chairman, Martin Gepsman as secretary and Patrick Lynch as treasurer. |
