The Man Who Molded Chicago's Merc;
Leo Melamed, chairman emeritus of CME Group,
helped make his company the world's largest manager of financial exchanges.

By Jacob Bunge, Friday, March 02, 2018

LeoWSJIn 1939, Leo Melamed learned about the power of financial markets in a bakery in Vilnius, Lithuania. He was 7 years old, trying to use Polish money to buy a loaf of bread. Though Lithuania's government had deemed the two countries' currencies equal in value, the baker informed Mr. Melamed that he'd need two Polish zlotys for a loaf that cost one Lithuanian litas.

"My father explained, to find real value, it's not the government—it's what the street tells you," said Mr. Melamed, now chairman emeritus of CME Group Inc., the world's largest manager of financial exchanges.

Mr. Melamed, 85, has spent the past five decades with his ear to the street. He started his career in the Chicago Mercantile Exchange's frenetic trading pits while in law school, but soon began trading full time and eventually worked his way up to head its board.

Now on the cusp of retirement, Mr. Melamed still has one more goal: nurturing the development of financial markets in China and other Asian countries. He also plans to publish his memoirs and a long-delayed second science-fiction novel. As someone once told him, he related, "No wonder you wrote science fiction—it's what you've been doing your whole life."

The CME, or "Merc," now operates in a future that Mr. Melamed and his exchange cohorts could only imagine in the 1980s. The Chicago-based company maintains markets on everything from corn and cattle to currencies and stock indexes. Its futures contracts let farmers, banks and hedge funds speculate on rising commodity prices and financial markets—or shield themselves from declines.

On an average day last year, more than 16 million contracts traded on the Chicago exchange group's markets, 89% of which passed through the CME's electronic "Globex" platform. The company collects fees for executing and processing trades, and its market capitalization has swelled to $56 billion, more than doubling over the past five years and eclipsing the world's other financial exchanges. In December the CME opened a new market linked to the digital currency bitcoin.

The Merc's old trading pits have given way to a cavernous room filled with computers and giant screens, where exchange officials monitor trading activity around the world. Forty years ago, Mr. Melamed daydreamed about an electronic trading platform for the CME, which would become one of the early developments of computer-based trading. After completing a novel concerning a computer-governed alien civilization—"The Tenth Planet," published in 1987—such a project seemed comparatively simple to Mr. Melamed.

Exchange members backed the proposal, and the CME hired market-communications company Reuters to design it. Constructing it and securing regulators' approval took five years; the first electronic trades were made in 1992. The project stoked fury among some futures traders, who worried that they'd be automated out of a job, and death threats led Mr. Melamed to hire an off-duty Chicago police officer to guard his office. As for the disgruntled traders? "They became millionaires when [the CME] went public" in 2002, Mr. Melamed said.

Tangling with irate traders was tame compared with what he had survived in his youth. The Melamed family landed in Chicago as Jewish refugees, propelled from their native Bialystok, Poland, in 1939 by Nazi Germany's invasion. Mr. Melamed learned risk-taking at a young age: After his father painted their windows black to protect the family's building from bombardments, Mr. Melamed scratched out a peephole to watch German tanks advance. His parents fled to Lithuania, across Russia and finally to Japan, where they secured passage to the U.S. just months before the Pearl Harbor attack.

While still in law school, Mr. Melamed got a $25-a-week job at Merrill Lynch, Pierce, Fenner & Beane, assuming that the lengthy name meant it was a law firm. The brokerage house soon dispatched him to the Merc's floor, churning with barked orders, flashed hand signals and runners spiriting messages to and fro.

"It was clearly out of some other world," said Mr. Melamed. Transfixed by the energy and opportunity, he plunged into trading eggs and pork bellies with his own money, scouring price charts and government reports for an edge. He went bust three times in those early years, once cashing in a jar of pennies worth $36 to cover the weekend's shopping.

Arm-twisting, cajoling and tireless promotion helped Mr. Melamed rise from the trading ranks to CME's board in the late 1960s, and he was elected chairman in 1969. Since then, he has spent all but a handful of years as a director or advising the board on everything from international tie-ups to government trading probes in years past.

He has presided over new currency and interest-rate markets, which by 1981 replaced agricultural markets as the exchange's main business. The CME's early move to go public eventually helped it to swallow its crosstown rival, the Chicago Board of Trade, and outgrow the New York stock markets that for decades gave the Second City's traders an inferiority complex.

After his planned May retirement, Mr. Melamed will continue as an emissary to Asian exchanges, including in China, where he advises China's Securities Regulatory Commission and has long encouraged regulators to open up the country's burgeoning financial markets. The commitment to free markets, creative thinking and occasional failures that Mr. Melamed found in the U.S. still offers a model for the rest of the world, he said.

"We are still the most looked-to nation for leadership," Mr. Melamed said. "You think there's another country where a guy from Bialystok, captured by the Nazis, can reach the level I did?"


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