Investment bankers cutting back at CBOE
May 1, 2003
BY DAVID ROEDER Business Reporter Advertisement
The woes of Wall Street are migrating to Chicago.
Major investment banks, facing business declines and, in some cases, financial penalties to settle charges of defrauding investors, are scaling back their presence in Chicago's futures and options pits.
The latest to reduce its profile here is Bear Stearns Cos., the nation's sixth-biggest investment bank. Sources said Bear Stearns this week will end its operation on the floor of the Chicago Board Options Exchange. One source said about 15 clerks and brokers will be fired.
The move follows similar reductions at the CBOE in recent months by Lehman Brothers Holdings Inc., Credit Suisse First Boston Inc. and Morgan Stanley. A Bear Stearns spokeswoman declined to comment on the company's plans.
The moves do not mean the firms are no longer routing business through the CBOE. They continue to trade stock and index options electronically or through other brokers.
All they are sacrificing is the face-to-face dealings of the trading floor. Veteran traders attribute the cutbacks to the growing influence of electronic trading and to normal business cycles.
"As things are going more electronic, the need for broker types on the floor is diminished,'' said William Floersch, chief executive of the trading firm O'Connor & Co. He said the investment banks are deciding whether it's more efficient to outsource the brokerage function. But he said the changes carry no dire consequences for the Chicago markets, even though investment banks are the exchanges' principal source of business. Floersch recalled a rush by the banks to boost their trading floor crews during the 1990s.
"It's like the tide. It comes in and it goes out, sometimes with a whoosh. Business goes on,'' he said.
Indeed, local job losses from the banks' pullbacks appear to be minimal. When Morgan Stanley left the CBOE, its floor staff was hired by a firm now handling its options trading, sources said.
All the banks cutting back at the CBOE have to pay portions of the $1.4 billion settlement the Justice Department negotiated with Wall Street. The penalties will settle charges, which the firms have neither admitted nor denied, that they pushed bad stocks on investors to win investment banking business.
The settlement comes as the banks are dealing with sharp falloffs in revenue because of the three-year bear market. Since the end of 2000, Wall Street firms have shed more than 80,000 jobs.
At the Chicago Board of Trade, ABN Amro Holding NV has said it might curtail its floor presence to encourage a transition to electronic trading. ABN Amro was not accused in the federal investigation.
"There clearly seems to be a preference for the speed and the accuracy of electronic trading,'' said John Damgard, president of the Futures Industry Association, which represents the leading investment banks. He said the firms' decisions involving the Chicago markets provide "another example of how the floors going forward may be jeopardized.''
Bernard Dan, president of the Board of Trade, said the trading floor population is growing. His operation and the Chicago Mercantile Exchange both are posting record volumes as investors look for bets on interest rates and stock indexes.
While most of the trading growth has taken place electronically, the floor also is enjoying more business. He said Merrill Lynch & Co., another giant investment bank, exited the exchange's floor but returned.
"People go, frankly, where there's opportunity,'' Dan said.
At the CBOE, business has been more of a challenge because falling stock prices have been a direct hit on the volume of options trading. As the nation's largest options market, the CBOE also is vulnerable when the securities industry cuts back.
"The reductions will come from here because their largest floor presence in options is at the CBOE,'' a source said.
Contributing: Bloomberg News |
