CBOT going public next week
suntimes.com
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For the Chicago Board of Trade, all was going well as it cruised toward its initial public offering of stock expected next week. And then scandal hit one of its biggest customers.
Fortunately for the CBOT, its prospects aren't directly tied to Refco Inc., now reeling from charges that its former chief executive hid $430 million in unpaid debts. But Refco is the eighth largest futures broker in the nation, and some worry that its troubles will cause losses to spread among other big firms that use both the CBOT and the Chicago Mercantile Exchange.
It's probably a far-fetched fear, but it was compelling enough Thursday to drag down the price of the Merc's shares more than 10 percent before they staged a partial, late-session recovery. Merc shares have advanced almost tenfold since they debuted in December 2002 at $35, and the Board of Trade hopes it own IPO will have similar good fortune -- minus the Refco factor.
Sources close to CBOT leadership said the IPO will not be delayed, even though some exchange members were advocating that Thursday.
Some fear Refco's scandal raised too many fears about futures trading for the CBOT, and the stock will fetch a price below what it would attract if Refco weren't in the headlines.
CBOT Chairman Charles Carey and President Bernard Dan on Thursday were on the tail end of a long "road show," a stock-selling trip that took them to brokerage firms in the United States and Europe. A spokeswoman declined comment, citing the vow of silence most companies take in a pre-IPO period.
The stock is expected to begin public trading Wednesday on the New York Stock Exchange under a symbol yet to be announced. The IPO shares are expected to be sold Tuesday.
The exchange has said the shares will go public in a range of $45 to $49 each.
The stock should rise from there, traders and analysts said, because of worldwide growth in futures trading. Refco's problems, they said, should cast only a brief shadow.
If the shares open at around $49 and don't immediately rise, they will pose a good buying opportunity, said Michael Manning, president of Rand Financial Services Inc., which owns CBOT memberships. "Before this Refco thing, I thought they would almost immediately trade $70 to $75-ish," Manning said. If the lower opening price holds, "I'm a buyer," he said.
All of the memberships, known as "seats" at the exchange, are being converted to shares, some of which allow trading rights. The shares available to the public do not carry trading rights.
In terse press statements, Refco has said its problems do not affect its regulated futures business, where it said all accounts are safe. Nevertheless, traders reported Refco is losing business in droves. "There's no way they can survive," one expert said, noting that so much new business was fleeing to its competitors that they were turning customers away.
Merc shares tumbled around mid-day Thursday, at one point trading as low as $285.15 after opening at $319. they rallied to close down $8.60 at $310.40 after the Merc issued its own statement about the soundness of its markets.
The Merc said Refco continues to maintain more capital than it needs to be a clearing firm at the exchange. But just in case, the Merc said it was restricting Refco from withdrawing any capital without permission.
Refco also was ordered to file weekly reports to supplement the Merc's regular monitoring of customer funds.
Analysts familiar with futures exchanges spoke highly of the CBOT's offering, even if they doubt it will match the Merc's as a success. Both exchanges, they said, benefit from rapid growth in trading volumes and a business shift away from face-to-face pits and toward higher-margin electronic markets.
Errett Van Nice, a first vice president at Wayne Hummer Investments here, said the worst thing about the IPO is how long it's taken to come out. The Merc, he said, was quicker to realize the advantages of tapping the public markets after reorganizing as a for-profit company.
Now, he said, the exchanges should merge. "If they want to stay as leaders and keep their industry strong in Chicago, they should consider consolidating," he said.
Analyst Meghan Crowe, who follows the Merc at Morningstar Inc., said CBOT shares should appreciate, but not like the Merc's. When the Merc went public, analysts were less certain about how to value futures exchanges, so the advantage went to shareholders.
The CBOT, however, has wondered if its own stock underwriters sold it short. Initial plans called for an IPO range of $33 to $36, and within days of that announcement, the CBOT received higher, unsolicited offers. Sources said one was from the Merc, and amounted to $42 a share.
But the CBOT opted to take its chances with the public.
It ranks as the world's third busiest futures exchange, while the Merc is No. 2 behind Frankfurt-based Eurex.
Many experts said that compared with the CBOT, the Merc's product mix is stronger and more versatile.
Much of the exchange's volume comes from Eurodollar futures and contracts tied to stock indexes and foreign exchange. The CBOT business is based in U.S. Treasury futures and agriculture contracts.
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CBOT HISTORY
1848 The Chicago Board of Trade (CBOT) is founded by 82 Chicago merchants, and settles into its first home above the Gage and Haines flour store at 101 South Water St. where it will meet until 1852.
1849-50 "To arrive" contracts come into use for future delivery of flour, timothy seed and hay.
1851 The earliest "forward" contract for 3,000 bushels of corn is recorded.
1865 CBOT formalizes grain trading by developing standardized agreements called "futures contracts." CBOT also begins requiring performance bonds called "margin" to be posted by buyers and sellers in its grain markets.
1885 As a result of the growth of futures, the CBOT erects a new building at La Salle Street and Jackson Boulevard, Chicago's tallest at the time. It's the city's first commercial structure with electrical lighting.
1930 CBOT moves into its current home at La Salle and Jackson.
1967 Electronic price display boards are installed.
1968 Iced broilers, the CBOT's first non-grain related commodity, begin trading.
1969 The CBOT ends its 121-year all-male tradition by admitting Carol J. Ovitz of Mitchell Hutchins & Co. and Mrs. Virginia Hansen of Similar Commodities Inc., into membership.
1973 CBOT members found Chicago Board Options Exchange (CBOE).
1975 CBOT launches futures on Government National Mortgage Association mortgaged-backed certificates (GNMAs) -- its first financial futures instrument.
1997 CBOT launches the CBOT Dow Jones Industrial Average Index futures and options on futures contracts.
2003 On April 16, the CBOT and the Chicago Mercantile Exchange (CME) jointly announce signing an agreement for the CME to provide clearing and related services for all CBOT products.
2005 On Jan. 3, the CBOT announces that 2004 was the Exchange's most successful year ever with volume reaching nearly 600 million contracts. Total annual volume rose 32 percent over the previous year to 599,994,386 contracts, making 2004 the third consecutive record-breaking year for the CBOT.
March 2 Chairman Charles P. Carey is re-elected. He's the first chairman to run unopposed for two consecutive terms.
March 11 The CBOT announced its net income in 2004 rose 37 percent to an all-time high of $42 million.
April 14 The CBOT announced that an overwhelming 99 percent of votes were cast in favor of the CBOT's restructuring proposal, which includes the demutualization of the exchange into a for-profit, stock-based holding company and for-profit, membership exchange subsidiary. |
