A point relayed to me by a friend that I didn't address in the post. "On the floor, the members were able to control order flow. On a screen u can't. Co-location was meaningless to the discussion. Unless you were an idea guy/ position trader, then you were out of business on a screen as a local. Many position traders couldn't make the jump because the level of volatility changed, and the ability/way to enter and exit positions changed. They didn't or couldn't adapt. Clearly, the brokers had to know they had a limited time if it went to the screen. But they should have calculated lost revenue for X years, wanted to still work vs expected growth in A shares going forward. Although, hard to know what the growth in A shares would have been, but in hindsight, the appreciation was very good."
A Northwestern professor was interviewed in the Trib. The reporter wasn't smart enough to see the nuance in the legal case to ask a good question, and the economics professor looked only at the innovation. The professor said, "This suit is like ditch diggers suing to stop a backhoe". It's not. It is a lawsuit on the terms of ownership of the production of the backhoe and leasing out the rights to companies to use the backhoe. What does the contract language mean?
This is what I mean about dim reporters. They are note takers.
Fascinating piece, Jeff. The analogies of open vs closed networks and transitions between them are, I think, pertinent to what is occurring in the political sphere.
The business press has been, at best, mediocre for decades, imho. Perhaps an opportunity for a new option? It sure isn't CNBC with their "marquee" analyst the laughable yeller, Cramer.
I never owned my seat. Being a true believer in diversification, I thought owning a seat would mean that u had too many eggs in one basket- the CME. Every month I took my commission check to the bank/brokerage office, and deposited between 50-90%. When I was squeezed by Cantor Gitzegrald and later MF global to take compensation in the form of Equity, I declined, even when offered steep discounts for shares, because I wanted to get my cash out; diversify my assets.
I went to the CME everyday for 21 years, always saying this isn’t going to last. It was too good to be true.
That’s the real lesson.
Nothing lasts forever. You make hay when the sun is shining, you stay humble, you save and diversify.
The CME was a golden goose. The corporatists saw dollar signs and knew it would be hugely profitable if they went electronic.
The members should have realized that standing in the pit and reading the room was their talent. Not understanding or predicting financial markets.
It’s like being a great poker player, and then playing roulette-
I wish all the members would get a big fat check, and could live happily ever after.
But their is no honor among thieves, and the floor guys didn’t understand what was happening.
The one quibble I would have is that the seat owners put money up on an asset that represented equity in the exchange. The suit is about the transfer of that equity into a new entity. What rights come with it? What was lost? In this way, people could say, "They got paid. they had equity, got new equity and it appreciated in price."
They got screwed- exchange is worth billions- that’s why I said no honor among thieves- as you alluded to, people on the floor acted with honor, and they assumed the powers in charge of the exchange would treat them with honor, but they didn’t. They slaughtered them and took the lions share for themselves.
People were paid 8 figures when it went public, who were nothing more than exchange officials
I have a different view, Peter. Members were granted stock that was worth millions within a few years of the IPO. CBOT members benefitted even more. Because of the lock up after the merger, before they could contemplate selling a single share, CME shares were up 4x. Then, on top of that, to this very day, members trade at vastly reduced exchange fees to retail. And, even the server location issue is overblown. Members need to clear their trades somewhere, and what clearinghouse isn't proximate to the GLOBEX network?
I don't know how much more the CME/CBOT boards could have done to protect their members. Equity? Check. Member trading privileges with vastly lower fees than the public? Check. Clearing firms given prime access to GLOBEX servers? Check.
Compare exchange members to cab drivers, who schilled out hundreds of thousands of dollars for taxi medallions, only to lose their exclusive right to fare pickups to ride sharing. Did Igor and Abdul, who mortgaged their future to buy a Checker Cab with medallion receive equity from Uber or Lyft? Or, to be more analogous, LIFFE members didn't own their memberships. So, no stock. I have small fry friends from the Bond pit who never made more than $150k a year who sold their seats and shares for $1.5mil. In some cases, they quit the pits in the late 80's and until they sold their seats in the mid aughts, they did nothing more than collect lease checks like Tony Soprano going to the mailbox in his bathrobe. There's way too much suffering in the world for me to shed tears over IMM members.
Hi Peter, I agree with much of what you have said here, especially the fact that "nothing lasts forever"! One of the participants in the suit stated that Loe told him that " he would make money in his sleep" and that his "edge" would "last forever"! I'm wondering weather he would have believed that the tooth fairy and Santa Claus were real too if Loe told him that!?!?
We all had a great run! Some longer than others depending on when you came to the floor. those who were prudent and realistic with their money and expectations are fine financially I believe. My brother and I were.
The one thing that really bothers me about all of this is that many of the people who help build the CME in the day's past will see nothing if monies are distributed. The lawsuit should have been set up to benefit those of us who were down there during the time that the litigants claim they were aggrieved!
I should have also added this opinion in the piece: The fact that exchanges operate as a closed network and create a lot of value doing so should inform the "decentralized" exchange crowd when it comes to cryptocurrency. They probably will not work because of the rigors and structures exchanges have to maintain in order to keep a trustworthy orderly marketplace.
Jeff, I bought my seat in 1986 an IMM the exchange forced us to buy on or leave for one year. I always felt the board at the CME would never screw the membership over, until 2002 ? when they went public. We received our shares in the exchange and you did what u wanted with them. Now anyone anywhere can trade on the exchange. The merc is making money hand over fist with the fees they charge companys at the trading floor. If my understanding is correct they are charging 10 to 12 thousand to rent space at the trading floor in Aurora. If my memory is correct there are 40 rows of servers with 80 spots in each one. The servers took the place of locals and order fillers on the floor. That is money that is owed to the members. You bought a membership to have access to the floor and best position to trade. The board saw the righting on the wall and did what was best for them screw the membership. We are entitled to what is ours.
That is the crux of the lawsuit. What's the floor? What's a core right? My opinion is not the law-but I think the former members ought to be paid for their core rights just like the NYMEX members were paid, the rights/seats and board representation extinguished. It doesn't matter what I think, but I think the core right price for the NYMEX is far too high ($750k), and that number was heavily influenced to buy votes for a merger. It is also my opinion CME paid far too much for NYMEX but that is so far gone it doesn't matter and if you look at the numbers along with accretive value to shareholder equity you can make only one case and that it was a positive move.
Interesting take on this, BUT, if you held onto the shares, you would have enjoyed the dividends that have consistently increased year after year! That is how the "wealth" of the CME has continued to be distributed. I didn't live above my means and for that reason, I've been able to live a comfortable life! I thank God every day for that!!!
Who had any idea the shares would do as well as they did? They opened up at $35 went to $700 then straight down to $150 my balls werent that big. And you are right Mark dont live beyond your means and a lot of people thought the gravy train would never end!!
Human nature, is human nature. You see a lot of similar issues with people who have substantial estates when they pass, but did not clearly and legally lay out who was going to get what. Human nature has not changed for thousands of years and likely won't in the next thousand.
Really good explanation and way above my understanding level but I get the gist.
I had an uncle who closely followed the CME. As far as I know never invested in it but followed it. His theory was if the price of a certain commodity fell he'd invest in the companies that used it, figuring they'd increase their profits. He made a lot of money so I guess it worked.
Your are correct about networks tending to reassemble in the same formation at the previous one. Politics too. The USSR structure was about the same as when the TSAR's ruled. Positions weren't hereditary and people at the top could quickly become people at the bottom. But the overall structure was close. Meet the New Boss. Same as the Old Boss. The first instinct after the America became America was to repeat the British format and make George Washington King. He said no rejected the title His Excellency and walked away after two terms. Things like that are rare.
Also the hidden gem in the write up is "you assumed..." We all do that and more often than not wind up with egg on our faces. So you aren't alone.
My opinion of the CME in the past two decades is reflected in the fact that I have not done even one trade on that Exchange that entire time.
I have been the single most active trader(nowhere near the most profitable or the biggest LOL) on the sixth largest crypto Exchange in the world for months at a time and have actively traded many other products around the world, but will not do any transactions on the CME.
Another thought is the CME needed to get rid of membership to go public. They gave us our equity in shares. They must of had a plan that as members we had no idea. The Cme made millionaires out of board members that never stepped foot on the floor.
Interesting take on this, BUT, if you held onto the shares, you would have enjoyed the dividends that have consistently increased year after year! That is how the "wealth" of the CME has continued to be distributed. I didn't live above my means and for that reason, I've been able to live a comfortable life! I thank God every day for that!!!
A point relayed to me by a friend that I didn't address in the post. "On the floor, the members were able to control order flow. On a screen u can't. Co-location was meaningless to the discussion. Unless you were an idea guy/ position trader, then you were out of business on a screen as a local. Many position traders couldn't make the jump because the level of volatility changed, and the ability/way to enter and exit positions changed. They didn't or couldn't adapt. Clearly, the brokers had to know they had a limited time if it went to the screen. But they should have calculated lost revenue for X years, wanted to still work vs expected growth in A shares going forward. Although, hard to know what the growth in A shares would have been, but in hindsight, the appreciation was very good."
A Northwestern professor was interviewed in the Trib. The reporter wasn't smart enough to see the nuance in the legal case to ask a good question, and the economics professor looked only at the innovation. The professor said, "This suit is like ditch diggers suing to stop a backhoe". It's not. It is a lawsuit on the terms of ownership of the production of the backhoe and leasing out the rights to companies to use the backhoe. What does the contract language mean?
This is what I mean about dim reporters. They are note takers.
Fascinating piece, Jeff. The analogies of open vs closed networks and transitions between them are, I think, pertinent to what is occurring in the political sphere.
The business press has been, at best, mediocre for decades, imho. Perhaps an opportunity for a new option? It sure isn't CNBC with their "marquee" analyst the laughable yeller, Cramer.
New option instead of Cramer is Twitter. Or AI
Never followed him...he lived a couple of towns over from us back in the day. Had a terrible reputation fwiw
I never owned my seat. Being a true believer in diversification, I thought owning a seat would mean that u had too many eggs in one basket- the CME. Every month I took my commission check to the bank/brokerage office, and deposited between 50-90%. When I was squeezed by Cantor Gitzegrald and later MF global to take compensation in the form of Equity, I declined, even when offered steep discounts for shares, because I wanted to get my cash out; diversify my assets.
I went to the CME everyday for 21 years, always saying this isn’t going to last. It was too good to be true.
That’s the real lesson.
Nothing lasts forever. You make hay when the sun is shining, you stay humble, you save and diversify.
The CME was a golden goose. The corporatists saw dollar signs and knew it would be hugely profitable if they went electronic.
The members should have realized that standing in the pit and reading the room was their talent. Not understanding or predicting financial markets.
It’s like being a great poker player, and then playing roulette-
I wish all the members would get a big fat check, and could live happily ever after.
But their is no honor among thieves, and the floor guys didn’t understand what was happening.
The one quibble I would have is that the seat owners put money up on an asset that represented equity in the exchange. The suit is about the transfer of that equity into a new entity. What rights come with it? What was lost? In this way, people could say, "They got paid. they had equity, got new equity and it appreciated in price."
They got screwed- exchange is worth billions- that’s why I said no honor among thieves- as you alluded to, people on the floor acted with honor, and they assumed the powers in charge of the exchange would treat them with honor, but they didn’t. They slaughtered them and took the lions share for themselves.
People were paid 8 figures when it went public, who were nothing more than exchange officials
I have a different view, Peter. Members were granted stock that was worth millions within a few years of the IPO. CBOT members benefitted even more. Because of the lock up after the merger, before they could contemplate selling a single share, CME shares were up 4x. Then, on top of that, to this very day, members trade at vastly reduced exchange fees to retail. And, even the server location issue is overblown. Members need to clear their trades somewhere, and what clearinghouse isn't proximate to the GLOBEX network?
I don't know how much more the CME/CBOT boards could have done to protect their members. Equity? Check. Member trading privileges with vastly lower fees than the public? Check. Clearing firms given prime access to GLOBEX servers? Check.
Compare exchange members to cab drivers, who schilled out hundreds of thousands of dollars for taxi medallions, only to lose their exclusive right to fare pickups to ride sharing. Did Igor and Abdul, who mortgaged their future to buy a Checker Cab with medallion receive equity from Uber or Lyft? Or, to be more analogous, LIFFE members didn't own their memberships. So, no stock. I have small fry friends from the Bond pit who never made more than $150k a year who sold their seats and shares for $1.5mil. In some cases, they quit the pits in the late 80's and until they sold their seats in the mid aughts, they did nothing more than collect lease checks like Tony Soprano going to the mailbox in his bathrobe. There's way too much suffering in the world for me to shed tears over IMM members.
Hi Peter, I agree with much of what you have said here, especially the fact that "nothing lasts forever"! One of the participants in the suit stated that Loe told him that " he would make money in his sleep" and that his "edge" would "last forever"! I'm wondering weather he would have believed that the tooth fairy and Santa Claus were real too if Loe told him that!?!?
We all had a great run! Some longer than others depending on when you came to the floor. those who were prudent and realistic with their money and expectations are fine financially I believe. My brother and I were.
The one thing that really bothers me about all of this is that many of the people who help build the CME in the day's past will see nothing if monies are distributed. The lawsuit should have been set up to benefit those of us who were down there during the time that the litigants claim they were aggrieved!
I should have also added this opinion in the piece: The fact that exchanges operate as a closed network and create a lot of value doing so should inform the "decentralized" exchange crowd when it comes to cryptocurrency. They probably will not work because of the rigors and structures exchanges have to maintain in order to keep a trustworthy orderly marketplace.
Jeff, I bought my seat in 1986 an IMM the exchange forced us to buy on or leave for one year. I always felt the board at the CME would never screw the membership over, until 2002 ? when they went public. We received our shares in the exchange and you did what u wanted with them. Now anyone anywhere can trade on the exchange. The merc is making money hand over fist with the fees they charge companys at the trading floor. If my understanding is correct they are charging 10 to 12 thousand to rent space at the trading floor in Aurora. If my memory is correct there are 40 rows of servers with 80 spots in each one. The servers took the place of locals and order fillers on the floor. That is money that is owed to the members. You bought a membership to have access to the floor and best position to trade. The board saw the righting on the wall and did what was best for them screw the membership. We are entitled to what is ours.
That is the crux of the lawsuit. What's the floor? What's a core right? My opinion is not the law-but I think the former members ought to be paid for their core rights just like the NYMEX members were paid, the rights/seats and board representation extinguished. It doesn't matter what I think, but I think the core right price for the NYMEX is far too high ($750k), and that number was heavily influenced to buy votes for a merger. It is also my opinion CME paid far too much for NYMEX but that is so far gone it doesn't matter and if you look at the numbers along with accretive value to shareholder equity you can make only one case and that it was a positive move.
Interesting take on this, BUT, if you held onto the shares, you would have enjoyed the dividends that have consistently increased year after year! That is how the "wealth" of the CME has continued to be distributed. I didn't live above my means and for that reason, I've been able to live a comfortable life! I thank God every day for that!!!
By the way how r u doing Mark? I used to trade with you in the euros. Bill Diehl WCD
Who had any idea the shares would do as well as they did? They opened up at $35 went to $700 then straight down to $150 my balls werent that big. And you are right Mark dont live beyond your means and a lot of people thought the gravy train would never end!!
PS have a nice time in Gods country.
Human nature, is human nature. You see a lot of similar issues with people who have substantial estates when they pass, but did not clearly and legally lay out who was going to get what. Human nature has not changed for thousands of years and likely won't in the next thousand.
Great read here. The way you describe the open and closed parts makes sense in a lot of different applications.
Really good explanation and way above my understanding level but I get the gist.
I had an uncle who closely followed the CME. As far as I know never invested in it but followed it. His theory was if the price of a certain commodity fell he'd invest in the companies that used it, figuring they'd increase their profits. He made a lot of money so I guess it worked.
Your are correct about networks tending to reassemble in the same formation at the previous one. Politics too. The USSR structure was about the same as when the TSAR's ruled. Positions weren't hereditary and people at the top could quickly become people at the bottom. But the overall structure was close. Meet the New Boss. Same as the Old Boss. The first instinct after the America became America was to repeat the British format and make George Washington King. He said no rejected the title His Excellency and walked away after two terms. Things like that are rare.
Also the hidden gem in the write up is "you assumed..." We all do that and more often than not wind up with egg on our faces. So you aren't alone.
Enjoyable as always.
My opinion of the CME in the past two decades is reflected in the fact that I have not done even one trade on that Exchange that entire time.
I have been the single most active trader(nowhere near the most profitable or the biggest LOL) on the sixth largest crypto Exchange in the world for months at a time and have actively traded many other products around the world, but will not do any transactions on the CME.
'nuff said
Another thought is the CME needed to get rid of membership to go public. They gave us our equity in shares. They must of had a plan that as members we had no idea. The Cme made millionaires out of board members that never stepped foot on the floor.
Interesting take on this, BUT, if you held onto the shares, you would have enjoyed the dividends that have consistently increased year after year! That is how the "wealth" of the CME has continued to be distributed. I didn't live above my means and for that reason, I've been able to live a comfortable life! I thank God every day for that!!!
What's the difference between a reporter and a recorder, One has a beating heart the other is correct
Very educational. The Press never reported accurately anyway, so you subject matter experts now have avenues to advertise your expertise.