Future vision
Jack sandner and the birth of the modern CME
Before it was a publicly held concern with a $25 billion market value, CME was a mutual organization owned and controlled by its members — an unruly crowd of loud, smart, headstrong traders.
As CME’s chairman for all but five years from 1980-1999, Jack Sandner had the unenviable task of persuading his members to take crucial steps toward electronic trading, demutualization and an eventual public offering. Grid asked him to look back on those seminal days.
Grid: You had to sell CME traders on computer trading, even though most of them saw it as a major threat to their existence. When did you become sold on it yourself?
JS: I was on a flight to Singapore in 1986, thinking about how we could extend our markets. We closed at 1 p.m. and after that all the trading had to happen over-the-counter. In the currency markets it was really costly. My first idea was to have a market — on the floor, not electronic — that continued as a futures market after hours. We would have somebody on the floor with a phone. That was the nascent thought.
So we created PMT [Post-Market Trade, in 1987] to create a liquid market at night, so people could call the floor after it closed. One of our members came to me and said, “This is a wonderful idea, but you know we have computers today - you don’t need a guy on the floor answering a phone.” I said, “Oh wow, great idea.” That was the beginning. Grid: And the traders went along?
JS: There was a big argument about putting computers on the floor in the evening. The members wouldn’t let us even think about building an electronic system that would be open during market hours — they would’ve killed me for bringing it up. But [electronic trading] just grew and grew, and we modified it and improved the system. It took time, but I made sure they didn’t feel threatened, and they saw the value we could create. We had to show them that technology was bringing the world to our markets — but that the world still had to go through a clearing member and a [ local trader].
Grid: In January 1998, you wrote a letter to CME membership, who had just reelected you chairman, in which you urged them to embrace electronic trading. You also raised the notion of going for-profit, and even teed up an acquisition of the Chicago Board of Trade. Obviously all of those things happened. Can you put your future-vision goggles back on, and tell us what you see lying ahead for Chicago’s futures industry?
JS: I think there will be a merger of services — there will be a couple of major clearing entities that will clear every trade. He who has the most secure clearing entity will be the winner. I think down the line you’ll end up with a lot more different products and trading. We will really grow by offering systems that other markets could not develop themselves. But clearing is the key to everything.
Grid: Risk management and derivatives are Chicago’s last bastions of relevance on the global financial scene. What do you see as the biggest threat to that dominance?
JS: The danger when you’re on top is that you can start to rest on your oars. So the biggest threat is someone says there are no more big ideas, we’ve created them all. If we lose our energy for new ideas, that’s the beginning of our demise.