ANNIVERSARY OF GLOBEX
June 21, 2002
his death, our dear friend, Nobel Laureate, Merton Miller, confided
that his greatest regret was not being present on the floor of
the Merc the day financial futures were born in May of 1972.
He missed that momentous occasion because he was out of town.
For that reason, he said, he made certain to be present for the
birth of Globex. Indeed, I stood arm in arm with Merton on the
floor of the Merc on the evening of June 25th, 1992,
and toasted the dawn of the electronic era, as the first of 1,893
IMM financial contracts became executed via an electronic venue
for the first time.
has justified Merton Miller’s deep intuition and understanding
about the magnitude of those two events. Ten years after the
birth of financial futures, he called them the most important
innovation in business of the prior two decades. Where he with
us today, he would no doubt similarly proclaim that the birth
of Globex forever changed the nature of futures trade. Our recent
1 million Globex transaction day certainly validates his reason
for wanting to be present at its birth.
reiterate what is clearly the understatement of the century,
it was a difficult birth. To begin with, its period of gestation
was an impressive five years. Why the gestation period of the
largest mammal on this planet, the Asiatic elephant, is only
twenty months. And it only took Orville and Wilbur Wright four
years to introduce us to the friendly skies. Then again, the
skeptics who derided the Wright Brothers antics at Kitty Hawk,
had nothing on the participants of the futures industry who considered
the Globex idea nothing short of impossible at best or suicidal
at worst. The controversy surrounding its conception, the planned
parenthood discussions between the CME and Reuters, the screams
of the pro-lifers (read, open-outcriers), the deafening silence
of the pro-choicers (read, almost no one), were enough to give
the likes of William Shakespeare enough material for three comedies
and as many tragedies.
let no one here tell you that in 1986, when the CME Strategic
Planning Committee which I had the privilege to chair, concluded
its deliberations with a report to the board that the CME must
be the first to undertake the creation of an electronic transaction
system, that there was any thunderous applause from any quarter
in the futures industry. Indeed, the very same FCMs that today
are its staunchest supporters dragged their feet and privately,
sometimes openly, opposed the idea. Why, it would serve to reduce
their commission flow, was the usual fear. Would it not impair
their ability to schmooz with their customer was a common lament.
is important to record that the CME board had recognized the
need to address globalization and the competitive threats it
represented. Our markets were without a patent. Anyone, in any
part of the world, could copy their design. A few years back,
to combat the efforts by the LIFFE to take our Eurodollars, we
found an inventive way to combat the attack. We created the Mutual
Offset System with Singapore. It worked like magic and Liffe
soon capitulated. But it had taken us three years to institute
Mutual Offset and it was doubtful that we could pull it off again.
Instead, a global solution was needed. Our Strategic Planning
Committee thus had its mission. In less than a year of deliberations,
we had the answer.
me record those brave members of Strategic Planning who served
with me and gave birth to Globex. Brian Monieson, John Geldermann,
Philip Glass, Scott Gordon, Richard Kapsch, Larry Leonard, Barry
Lind, Lawrence Rosenberg, Louis Schwartz, Steven Wollack, Robert
Zellner, and, the CME chairman, Jack Sandner who was an Ex Officio
is what we said to the CME board:
is upon us. No longer are the markets of New York, London,
Tokyo or the many other major population arenas separate centers
of finance. Technology has forced a single worldwide market.
news is distributed instantaneously across all time zones.
Everyone has access to all informational flows and the capacity
to use the information to initiate market positions. One need
no longer wait for local markets to open in order to act.
demands a new trading system, one that is responsive to the
24 hour trading day."
to the Globex announcement, the suggestion of electronic trade,
known simply as the "black box," was considered the equivalent
of the Dark Side. Anyone who seriously proposed such a concept
would summarily become Darth Vader of the futures world. Indeed,
more than once I received little unmarked packages with ticking
noises inside—remember this was long before Anthrax was the missive
of choice. Anonymous veiled death threats in my mail were also
not uncommon. In fact, the CME had to provide me with special
security. No one, but no one, thought that such a dastardly idea
as electronic trade would emanate from the leaders of the Merc.
Indeed, on the eve of our announcement, a prominent financial
reporter of a major Chicago Daily confidently predicted that
the Merc would follow the CBOT with after-hours trading pits.
Lo and behold, the Merc’s board of directors, most of them beholden
to open outcry, voted unanimously in its favor. Talk about principle
over personal interest.
contrary to everyone’s prediction the Merc would not attempt
to step back into time with evening pit sessions as did our neighbors
at the CBOT. That solution we knew was an act in futility. The
Merc embraced reality and the CBOT was stunned. It was the death-knell
to futures markets they and many others proclaimed. Still, to
the CBOT’s credit, a year later they made a full turn-around.
If your competitor has the H-bomb, they said, then we must have
one as well.
secrecy surrounding our decision was second only to that of the
Manhattan Project. A much anticipated members’ meeting was scheduled
on the Merc’s upper trading floor. This was before that floor
was remodeled for trading. One thousand two hundred and forty
members came to the meeting, the highest attendance in our history.
Reuters sent their select vice-presidents, Andre Villeneuve and
John Hall to explain the deal. Jack and I had the honors of convincing
our open outcry members that they had to leave the comfort of
past attitudes. Electronic trade, we promised, would protect
and behold, to the world’s complete surprise and to the everlasting
credit of the Merc membership, a month later, in September of
1987, some 88 percent of its members voted in a referendum in
favor of proceeding with Globex. Talk about overcoming conflict
of interest. Talk about responsibility. Talk about rising to
the occasion. In the final analysis, the CME members did what
they always did, embraced innovation. I have said this before
and I say it again, our members, now shareholders, were the most
educated, far-sighted, members of any comparable institution.
They understood that if the destiny of futures markets was to
be electronic, than it was imperative that the Merc own the franchise.
here we are, ten years later and a million Globex transaction
day a fact, and Merton Miller’s reason for wanting to be present
at its birth has been fully validated. I salute the members of
the Chicago Mercantile Exchange.
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