Merc chief: Members won't be duped into selling stock
June 7, 2004
BY DAVID ROEDER Business Reporter Advertisement
Terry Duffy, chairman of the Chicago Mercantile Exchange, surmised that last week's sell-off in his company's stock was caused by a war of nerves -- securities traders vs. the futures traders he knows so well.
If that's the case, the futures traders won, for now.
Shares in the Merc, one of the best-performing Chicago area stocks this year, tumbled last week amid concerns that the exchange's members would start cashing in stock that has more than tripled in value since the initial public offering in December 2002. Friday marked the expiration of a so-called "lock-up'' period restricting share sales by members.
Some analysts argued that after going public at $35 a share last year and topping $131 a share in May, Merc stock was vulnerable to some major profit-taking.
With about 19 million out of 33 million shares in members' hands, analysts worried that the lock-up expiration would unleash a selling binge. The stock took its biggest hit Tuesday, shedding $7.19 to close at $122.01, when a Merrill Lynch analyst downgraded his rating on the Merc.
It lost more ground through the week, but rallied on Friday, gaining $2.16 to close at $120.61. Friday's volume was heavy, 1.3 million shares vs. a six-month daily average of about 250,000 shares.
There was no sign of members selling en masse. Duffy said Wall Street might have hyped the lock-up expiration to scare members into selling. "People were trying to short sell to see if the members would hiccup,'' Duffy said. "But they don't realize that these are futures traders who own these shares, and they know what they're doing.''
He said members continue to see value and growth prospects in the exchange's business, and hence are unlikely to dump shares. Three previous opportunities for members to sell generated little activity.
Duffy said that while he welcomes his stock's performance, he's unconcerned about its daily changes. "As long as we continue to deliver on our business plan, the fundamentals will take care of themselves,'' he said. "My years of trading have told me that the fundamentals always win out.''
The Merc has benefited from two major trends: a huge growth in futures trading and a shift to transactions being executed via computer. Compared with the trading floors, computer trading is more lucrative for the Merc because it generates more fees.
Joel Gomberg, analyst at William Blair & Co. who tracks the Merc, said fears of a member sell-off were exaggerated. The more than 2,000 members constitute a "fragmented ownership'' but they know the business is solid, he said.
Gomberg said the Merc's trading volume has grown at a compound annual rate of 15 percent over the last 10 years.
The stock could even benefit from more shares becoming available, he said, because more institutions will be tempted to buy in. |
